Basics of Tax Filing
No need to ask, we are going to teach you everything you need to understand the basics of tax filing. To get you started, it’s useful to understand what your income tax return is for and why you've got to file it in the first place. Here are 4 basic tax facts that you should keep in mind:
Your federal income tax return tells the U.S. government what proportion of income you earned, what proportion of tax you already paid, and how much you were alleged to pay.
For most people, filing your taxes requires completing IRS Form 1040 and attaching any necessary forms. Required forms like W-2 are typically provided by your employer.
You can file your 2020 taxes starting in January 2021, but they need to be filed by April 15, 2021, unless you file an extension.
People with an income of $69,000 qualify to file taxes online at no cost, through the IRS Free File program.
Important Tax Terms
As you go through the process, you’ll stumble upon these three important tax terms:
Filing is synonymous with sending something to the right recipient. When the IRS says to file a form, it just means send it to the IRS.
When you claim something on your income tax return, it means you qualify for the credit. For instance, claiming the earned tax credit just means you’re taking the credit. Claiming a dependent means someone qualifies as your dependent.
Some tax forms are called schedules. This has nothing to do with the calendar and is simply another word for form.
Other common tax terms include tax deduction, tax credits, tax audits, which we will discuss later in the later reading.
Why we file tax returns
All workers within the U.S. (with only a couple of exceptions) need to pay federal income taxes. Rather than paying your whole bill directly, the federal government requires employers to withhold some of your annual salary from each of your paychecks. Removing those taxes from your paycheck is understood as withholding.
Your employer knows what proportion to withhold based on your W-4 form. It includes your personal information, like what proportion you expect to earn over the upcoming year. Employers send the withheld taxes to the IRS, the federal bureau responsible for collecting tax. The IRS tracks what proportion everyone, the company, and the organization has paid.
If you’re self-employed or don’t have an employer that withholds taxes, you continue to get to withhold taxes from your pay. You are doing this through income tax payments. Estimated taxes are quarterly payments you pay to make sure you pay the income taxes you owe.
At the top of the year, everyone who owed tax must inform the IRS that they paid enough tax during the year. You are doing this by filing an income tax return. Your income tax return may be a form that details what proportion of income you earned, what proportion of tax you already paid, and how much you owe. You'll also see the method of filing an income tax return called filing your taxes. Married couples can file a tax return that covers both spouses.
Most people overpay income taxes throughout the year, then the IRS gives them a tax refund. If you underpaid, you'll receive a letter to pay the IRS what you owe. There are also fees and penalties if you are underpaid by an excessive amount or if you don’t pay your bill on time.
When to file your tax return
Each of your tax returns covers one tax year. For nearly all people, the tax year is simply the calendar year, January through December. You will file your federal tax return early the next year. You file your 2020 income tax return in early 2021, but it’s still called your 2020 taxes. annually the IRS sets the date when it'll start accepting returns, but it’s usually within the last week of January or early February. (File as soon as possible to avoid tax fraud.)
In 2021, the deadline to file your return is April 15, Tax Day. In 2020, for the 2019 tax year, the Trump administration extended Tax Day by 90 days, to July 15, thanks to the coronavirus pandemic, but there's no indication that the incoming Biden administration will make an identical change.
The period of time you can send your income tax return is generally called tax season. There's no set length to tax season since the IRS might not start accepting returns on different dates, but the deadline date doesn’t change.
The exception to the Tax Day deadline is that if you file for a tax extension. A tax extension gives you until October 15 to file your income tax return. But you would have to file an extension by filing the right IRS form by the standard April 15 deadline. However, if you owe taxes and obtain an extension, you still have to pay your bill by Tax Day otherwise you will incur fees. An extension only gives you longer to send your income tax return.
(Businesses often have a tax year that’s different from the civil year. A “tax year” is technically just a 12-month period and therefore the IRS allows businesses to use a period different from the calendar year for accounting purposes. Many companies define their tax year as their fiscal year, which usually coincides with the beginning of a business quarter.)
Do you have to file a tax return?
Most people with income within the U.S. have to file an income tax return. Whether or not you would like to file depends on your total annual income (gross income), filing status, age, and whether you're someone’s dependent.
Your filing status determines your tax rates, your filing requirements, eligibility for tax credits, and therefore the amount of your standard deduction. There are five filing statuses and yours mostly depends on your legal status:
Single status is for people who aren’t married or are legally separated. Individuals who use this status are called single filers. Single filers with dependents may qualify for the top of household status.
The head of household (HOH) status is for people who aren’t married and paid more than half the annual cost of maintaining a home for themselves and a qualifying dependent.
The married filing joint status is for a marriage of two who are completing one return for both spouses. If you’re married, this is often the simplest filing status to use. You get a better standard deduction and you’ll likely pay less tax overall than if you file separately. People using this status are called joint filers.
Married filing separately (MFS) is for people that are married but want to file a separate return from their spouse. the most reasons to use this status are if you’re concerned that your spouse is evading taxes and you don’t want to be held liable, if you'll get higher itemized deductions by filing separately, or if one spouse has debts that are subject to either refund seizure or an income-based payment (like student loans). Most married couples should just file jointly.
You can use the qualifying widow(er) (QW) status if your spouse died within the last two years, you haven’t remarried, and you've got a dependent child. This status treats you as if you’re filing jointly, so you'll deduct more and pay lower rates than filing as single.
If you qualify for multiple statuses and still aren’t sure which you ought to use, consider filling out the 1040 multiple ways to see what proportion you’d need to pay. Yes, that’s extra work, but it shouldn’t be very difficult if you’re using a web filing service. It also won’t cost anything more as long as you fill out the forms but don’t send them to the IRS.
As a general rule, file a return if your total income was more than your standard deduction, which was $12,400 in 2020 (and $12,550 in 2021). The table below lists the filing thresholds for many people in 2020.
Income thresholds for filing 2020 taxes
If someone claims you as their dependent, you generally need to file a return if your total annual income was $1,050 or more. That income limit is $2,700 if you're over age 65 or blind. IRS Publication 501 explains dependents’ income limits in additional detail.
Even if you fall into the income thresholds above, you should still file an income tax return if you’re eligible because usually, tax credits provide a refund. Take this IRS assessment to determine if you must file a return. If so, follow the next article to learn the steps to filing your taxes.
Disclaimer: This article is written for the 2020-2021 tax year
Edited by Vanessa Wong
Guest Author Spotlight: Joyce Lam
Joyce is a Tax Site Supervisor for VITA program at IRS. She is also a founder of Kaimore, a nonprofit that promotes economic mobility by providing targeted professional development services for those who are underprivileged.
