Sitting down to file taxes can seem daunting. However, you can make this process easier by gathering important financial and personal information before running Form 1040.
To file federal and state taxes, you will need:
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.
You will also need information on income and investments. This information can be obtained from the forms you should send to you prior to filing taxes. Your W-2 form shows how much you earned in the previous year and how much of your income was withheld from taxes. Your employer must send you this form by February each year.
You will also need information about your bank account that shows how much you have earned in the savings account. 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. This form shows how much interest was paid on student loans. For https://ingramsaccounting.com.au/accounting-optimisation/taxation/ who have a mortgage, Form 1098 will show how much interest you paid. Both forms are important because you could deduct this interest from your taxes.
If you are self-employed, you will need 1099 forms. Any client that paid $ 600 or more in the past year will send these forms to you. 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. And if you have received any money or benefits from the government, this income will be listed on Form 1099-G.
Submission Status: You will also need to determine your submission status. This is crucial because it will determine how much income tax to pay. This is how you can apply:
- Single: If you are not married or claimed as dependent on another’s tax return, you will file your taxes as a single taxpayer. Taxpayers are entitled to a standard deduction up to $ 12,400 in 2020.
- Marriage filing together: Most people who are married register in this category. This allows them to file one tax return. If you fall into this category, your standard deduction for tax year 2020 is $ 24,800.
- 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 can be very beneficial. 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. Be sure to only request deductions that you are legally allowed.
The most common deduction is the standard deduction. This is the amount of money you can deduct from your taxes if you don’t provide additional deductions. 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 you can deduct as much money as you like from your taxes.
It makes sense to claim a standard deduction if this amount is greater than the total amount of other deductions you could claim. These are some examples of deductions you could apply:
- Mortgage interest
- Student loans are subject to interest
- You have made charitable donations
- IRA contributions and health savings accounts
- Costs of self-employment
If your filing status is single and these additional deductions total more than $ 12,400, it makes sense to waive the standard deduction and write down your deductions in 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. These are different from deductions in a key way. While deductions can reduce your taxable income by reducing it, credits are taken directly from your tax document.
Your tax document would drop to $7,000 if you owed $ 12,000 taxes and were eligible for a $5,000 tax credit.
There are many tax credits. An example is an adoption credit, which you might be eligible for if you adopted a child. This credit can reach up to $ 14,300 for each child adopted in 2020.
You may be eligible for the child tax bonus if you have a dependent kid. If you have three eligible children, this credit can reach up to $ 6,660. This credit could be $ 5,920 if you have two eligible children and $ 3,584 with one eligible child.
Filing a return: You can file a tax return in many ways. Of course, you can choose to send them to the IRS and your government.
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.
The IRS will provide a transcript of your tax return at no cost to you. A transcript of your tax return can be requested for both the current and previous tax years. These transcripts will help you prove your income while applying for a student loan, mortgage or any other loan type.