What Is a Tax Return?

A tax return is a form or forms that are submitted to a tax authority in order to report one's income, expenses, and any other relevant tax information. Taxpayers are able to determine their tax liability, plan out their tax payments, and make claims for tax refunds for amounts that were overpaid by filing tax returns. In the majority of countries, individuals and businesses that have reportable income (such as wages, interest, dividends, capital gains, or other profits) are required to file tax returns on an annual basis.

• A tax return is a piece of documentation that is filed with a tax authority and reports a taxpayer's income, expenses, and any other pertinent financial information.

• Taxpayers determine their taxable income, establish a payment plan for their taxes, or submit a claim for a refund if they overpaid their taxes using the information provided on their tax returns.

Annual tax returns are required to be filed in most jurisdictions.

Understanding Tax Returns

Tax returns are submitted to the Internal Revenue Service (IRS) or to the state or local tax collection agency (such as the Massachusetts Department of Revenue) in the United States. These returns contain information that is utilized in the process of calculating taxes owed. Forms that have been prescribed by the Internal Revenue Service or another relevant authority are typically used when preparing tax returns.

When it comes time to file their federal income taxes, individuals in the United States use various iterations of the Internal Revenue Service's Form 1040. When filing their annual returns, corporations are required to use Form 1120, while partnerships are required to use Form 1065. When reporting income from non-employment-related sources, a number of different types of 1099 forms can be used. Form 4868 is the application to request an automatic extension of the time to file a return of individual income tax to the United States.

In most cases, the first step in filing taxes is for the taxpayer to provide their personal information, which may include their filing status and information about their dependents.

The Sections of a Tax Return

In general, tax returns are comprised of three primary sections, each of which allows you to report your income, determine the deductions and tax credits for which you are eligible, and claim any applicable tax breaks:

Income

The section of an income tax return that lists all sources of income is called the income section. The W-2 form is by far the most common form used for reporting. Wages, dividends, income from self-employment, royalties, and capital gains must all be reported, as is required in the majority of countries.

Deductions

Deductions will indeed reduce the amount of tax that must be paid. Contributions made to retirement savings plans, alimony paid, and interest deductions on some loans are some common examples of tax deductions. However, tax deductions can vary significantly from one jurisdiction to another. The majority of costs directly connected to running a business can typically be written off by the company. Deductions can be itemized by taxpayers, or they can choose to use the standard deduction that corresponds to their filing status. When the total sum of all deductions has been subtracted from the taxpayer's adjusted gross income, the taxpayer is then in a position to calculate their individual tax rate (AGI).

Tax Credits

Tax credits are amounts that reduce an individual's overall tax liability or the amount of taxes that are owed. Similar to deductions, these can be very different depending on the jurisdiction. On the other hand, there are frequently deductions for things like the care of dependent children and elderly people, pensions, education, and a great many other things.

At the very end of the tax return, after the taxpayer has reported their income, deductions, and credits, the amount of tax that they owe or the amount of tax that they have overpaid is determined. Taxes that have been paid in excess can either be refunded or carried over to the following year's return. Taxpayers have the option of making a single payment in full or spreading out their payments over a set period of time. In a similar vein, the majority of people who are self-employed have the ability to make quarterly advance payments to reduce the amount of taxes they owe.

You have the option of filing your tax return in one of three ways: by filling it out yourself, by using tax preparation software, or by hiring a tax preparer or accountant who might gather the required information from you and file it on your behalf.

Special Considerations

The Internal Revenue Service advises taxpayers to keep their tax returns for a minimum of three years after filing their taxes. However, depending on the circumstances, retention may need to be extended further. There are circumstances that could call for the indefinite storage of returns that have been filed.

In the event that an individual's tax return contains errors, an amended return needs to be filed in order to rectify the situation.