What Are Individual Tax Returns and How Do They Work

What Are Individual Tax Returns and How Do They Work

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

What Is an Individual Tax Return?

An individual tax return is an official form that a person or a married couple submits to a federal, state, or local taxing agency to report taxable income received during a specific period, usually the previous year. This record is used to assess the amount of tax due or overpaid for that period.

The Internal Revenue Service (IRS) is the federal taxing authority in the U.S. All countries have agencies that oversee national tax collection. Some tax agencies provide pre-filled individual tax returns, while others require taxpayers to fill out and file returns on their own.

Key Takeaways

– An individual tax return is an official form that a person submits to a federal, state, or local taxing agency to report taxable income received during the previous year.

– All U.S. tax returns are submitted to the Internal Revenue Service (IRS).

– Businesses, corporations, and non-profit groups are all required to file their own variations on the individual return.

– In addition to a federal tax return, every U.S. state has a state taxing authority that oversees the annual collection of state tax.

Taxes are usually due on April 15th every year, though this date may be shifted for holidays or weekends. The tax filing date for 2024 remains April 15th.

Understanding the Individual Tax Return

The individual tax return is one of several forms used to report taxable income in the U.S. Businesses, corporations, and non-profit groups are all required to file their own variations on the individual return.

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Every person who earns a certain minimum income must file a tax return every year. All individual taxpayers file their returns on IRS Form 1040 or 1040-SR. Married people may choose to file individually or as a couple.

Once complete, the taxpayer must submit the form by a deadline, usually April 15th or the following weekday. Additional tax forms may be required, especially for itemizing deductions rather than taking the standard deduction.

Every U.S. state, even those without a state income tax, has a state taxing authority. The agency oversees the annual collection of state taxes. Taxpayers file state tax returns with the state in which they reside if the state taxes income. Most state tax returns assess and calculate taxes based on line items copied from the federal tax return.

Different entities pay different types of taxes. In addition to individual tax returns, there are business tax returns, estate tax returns, etc.

Individual Tax Return Forms

Form 1040 is the two-page form used by nearly all individual taxpayers. It can be used to record income from wages, salary, tips, capital gains, dividends, interest, unemployment compensation, pensions, annuities, Social Security, railroad retirement, taxable scholarships, and the Alaska Permanent Fund dividends.

The 1040-SR, an optional version for seniors, has a larger type size and gives greater prominence to tax benefits exclusively for retirees. Note that other versions of the individual tax return, including Form 1040-EZ and Form 1040-A, were retired after the 2017 tax year.

Other Forms to Report Individual Taxes

The individual tax return is not the only form that some taxpayers need to complete. Sales of stock, for example, must be reported on a Schedule D form and attached to the 1040.

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Self-employed individuals and business owners are required to report and pay taxes quarterly using Form 1040-ES. Payments due after completing Form 1040 are submitted with Form 1040-V. Taxpayers who need to amend their individual tax returns use Form 1040-X.

Philosophy Behind Individual Tax Returns

Taxes as a civic duty have deep historical roots. In ancient civilizations, individuals contributed resources to support communal needs. In modern times, taxes represent a fundamental aspect of civic responsibility and serve as a financial commitment to bettering one’s community.

Governments rely on tax revenues to finance public infrastructure, education, healthcare, and various services that contribute to the overall betterment of society. Individual tax returns collect resources that can be disbursed for general social welfare, such as roads, police, or parks.

Not everyone has to file an individual tax return. The IRS has criteria where people may not need to file if they don’t make enough money or do not have certain types of income.

Individual Tax Return Statistics

The IRS tracks information and statistics about individuals and their tax returns. In fiscal year 2022, individual income tax withheld, along with tax payments, reached over $2.8 trillion before factoring in refunds. Businesses contributed nearly $475.9 billion in income taxes during the same year.

Around 81.2% of all filings were submitted electronically, with 93.8% of individuals e-filing. Over 237.8 million refunds totaling $512.0 billion were issued, including refundable child tax credits and earned income tax credits supporting low to moderate-income individuals and families.

Key Components of an Individual Tax Return

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The key components of an individual tax return include personal information, filing status, income details, deductions, credits, and the calculation of taxes owed or refunds due. Accurate reporting ensures a comprehensive representation of an individual’s financial situation for the tax year.

How Does Income Tax Withholding Work?

Income tax withholding is a system where employers deduct taxes from employees’ paychecks. Understanding withholding helps individuals manage tax liabilities and avoid surprises during tax season.

What Happens If I Miss the Tax Filing Deadline?

Missing the tax filing deadline can result in penalties and interest. Individuals should consider filing for an extension to avoid potential financial consequences.

What Credits Are Available to Individuals?

Tax credits offer direct reductions in tax liability and may include credits for education expenses, child care, or energy-efficient home improvements. Identifying and claiming eligible tax credits can significantly reduce the overall tax burden.

The Bottom Line

Individual tax returns involve the comprehensive reporting of personal financial information, including income, deductions, and credits. They are used to calculate the taxes owed or the tax refund due to the taxpayer.

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