It can be daunting to sit down and file taxes. However, you can make this process easier by gathering important financial and personal information before running Form 1040.
You will need the following documents to file your federal and state taxes:
Your basic personal information, such as your social security number or tax identification number for all the persons listed in your return, and the date of birth for everyone who returns. This will usually include your numbers and dates of birth, of course, but also the numbers of your spouse and dependents.
Information about income and investments will also be required. This information can be obtained from the forms you should send to you prior to filing taxes. The W-2 form will show how much income you have earned and what percentage was withheld from taxes. This form must be sent by your employer each February.
Information about your bank account, including information on how much you’ve earned in savings, will be required. If you have contributed to an IRA, you will need a Form 5498 provided by the financial institution offering your IRA and one that shows how much you contributed in the previous year.
Important is the Form 1098 E. Indicates how much interest you paid on student loans. If you have a mortgage, Form 1098 shows how much you paid on interest on that loan. Both forms are important because you could deduct this interest from your taxes.
You will need 1099 forms if you are self-employed. These forms are sent to you by any client who paid you $ 600 or more the previous year. You will need to report this information in your tax returns as income. You will need to fill out Form 1099-DIV if you have received dividend income. You will also need to list any income received from the government.
Submission Status: This is where you will need to identify your submission status. This is important because it helps determine how much income tax you pay. You can apply as:
- Single: If you are not married or claimed as dependent on another’s tax return, you will file your taxes as a single taxpayer. Individual taxpayers are entitled to a standard deduction of $ 12,400 for tax year 2020.
- Marriage filing together: Most people who are married register in this category. This allows them to file a single tax return. This category allows you to deduct $ 24,800 as your standard deduction for 2020 tax year.
- Married filings separately: Married couples can also each file their own tax returns and report only their personal income, deductions and credits. The standard deduction for taxpayers who file this way is $ 12,400 for the 2020 tax year.
- Main parts of tax returns: There are three main parts to your tax return. This is where you will report your income for the previous year. The second section is where you can report tax deductions.
Tax deductions are valuable. You subtract them from your adjustable gross income for the year, which means they help you reduce your taxable income. The more deductions you apply in your tax return, the lower your taxable income and the taxes you will pay. Just make sure you only request deductions to which you are legally entitled.
The standard deduction is the most popular deduction. If you do not provide any additional deductions, this is the maximum amount you can deduct from taxes. If you are applying as a single taxpayer, the standard deduction is $ 12,400 for the 2020 tax year. If you are married and filing together, your standard deduction for the 2020 tax year is $ 24,800. This means that you can deduct so much money from the taxes you owe.
If the standard deduction is more than what you could claim, it makes sense to claim it. These are some examples of deductions you could apply:
- Mortgage interest
- Interest paid on student loans
- You have made charitable donations
- Contributions to IRAs and Health Savings Accounts
- Costs of self-employment
If you are single and your additional deductions exceed $ 12,400, it is a good idea to write your deductions into your tax returns. It is a good idea to take a standard deduction if these deductions total less than $ 12,400.
Tax breaks are the third section of your tax return. https://ingramsaccounting.com.au/accounting-optimisation/taxation/ differ from deductions in an important way: While deductions reduce your taxable income, credits are deducted directly from your total tax document.
If you owed $ 12,000 in taxes and qualified for a $ 5,000 tax credit, your tax document would drop to $ 7,000.
There are several different tax credits. For example, if you have adopted a child, you may be eligible for an adoption tax credit. This credit can reach up to $ 14,300 for each child adopted in 2020.
If you have a dependent child, you may be entitled to the child tax bonus. If you have three eligible children, this credit can reach up to $ 6,660. If you have two eligible children, the credit can be as high as $ 5,920. It is $ 3,584 for one child.
Filing a return: You can file a tax return in many ways. You can also choose to send the tax returns to your government and the IRS.
You can also submit tax forms online.
Transcripts of tax returns
What if you need to see your past tax information? This can be done by requesting a tax return transcript from the IRS.
A tax return transcript summarizes your past tax returns, including adjusted gross income, filing status and tax payments.
You can request a tax transcript from the IRS at any time, and the agency will not charge you fees. A transcript of your tax return can be requested for both the current and previous tax years. These transcripts can help you prove your income when applying for a mortgage, student loan or other type of loan.