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Filing Taxes: A Guide to the Process

Bybt7VA88j

Jan 2, 2024

How Do I File My Tax Return?

The process of filing a tax return can seem intimidating. However, with the right resources and guidance, it can be fairly straightforward.

Begin by gathering your tax documents, including W-2s and 1099s from all sources of income. Determine whether you should itemize or claim the standard deduction. Compare the two to see which option delivers the most savings.

Income

Enter the total amount of income you expect to report on your return, including wages, tips, commissions, interest, dividends, investments, rental income, unemployment compensation, alimony payments and retirement distributions. Also add the amounts you plan to claim for tax credits, such as the child or dependent care credit, earned income credit and EV credit. If the total of what you expect to owe in taxes is less than the amount that was withheld from your paychecks during the year, you may receive a refund.

The calculator will help you determine your filing status and estimate your adjusted gross income (AGI). Your filing status, age and AGI impact the deductions and credits you can claim. This information will also help you determine if you need to file a state return.

Deductions

A tax return is a completed calculation of an individual’s or entity’s income earned and the amount of taxes to be paid or returned by the IRS. This is done via documentation that includes the main form used for filing, Form 1040, and other documents or schedules that may need to be attached depending on how deductions are reported or what types of credits are claimed. Tax credits can lower your tax bill more than deductions, and some are even refundable if they go over what you actually owe.

Deductions reported on your tax return include things such as mortgage interest, contributions to saving plans for retirement and other charitable donations. Depending on your filing status, you can itemize deductions or take the standard deduction that’s predetermined and lowers how much of your income gets taxed. Your tax software or a professional can help you run the numbers and see which method will save you more money.

Miscellaneous Items

Before the tax code changes in 2018, wage-earners who itemized deductions were able to write off miscellaneous expenses like unreimbursed job-related expenses, tax preparation fees and safe deposit box rent. These expenses were reported on Schedule A and could be claimed as long as the total of all items on the form exceeded 2% of your adjusted gross income.

The IRS defines “ordinary and necessary” as costs that are commonly used in your industry to perform a particular function. For example, a hairstylist who buys hair products or uniforms is writing off these expenses because they are necessary for the performance of her job. A casual gambler is not, however, able to deduct their gambling losses. In addition, certain miscellaneous expenses are no longer deductible, including rent paid for a safe deposit box that is used to store taxable investment-related papers, credit card convenience fees and legal expenses incurred to produce or collect taxable income.

AGI

The IRS uses your adjusted gross income, or AGI, to calculate your tax liability. It’s also used to determine eligibility for certain deductions and credits, including the earned-income tax credit and saver’s credit.

Your AGI is basically your total household income that’s subject to income taxes — including wages, salaries, tips, business earnings, investment income, Social Security benefits and retirement account distributions — minus specific deductions or “adjustments.”

To find your AGI, start by tallying your reported gross income for the year, which can include wage and salary earnings, interest, dividends, capital gains, rents, royalties, investment income and farm income (or loss). Then subtract applicable adjustments. Your final figure is your taxable income, which you can then use to claim the standard deduction or itemize deductions. Your AGI is listed on line 11 of your tax return, which varies by form and filing status. If you use tax software, it typically reports your AGI automatically.

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