Understanding Your Personal Income Tax Return

Tax

July 20, 2022

Written by John Wonneberger

When it comes to tax time, there’s a lot of information to take in. It can be difficult to know where to start between individual tax returns, personal tax planning, trust & estate preparation, and more.

This blog post will explain everything you need to know about personal tax returns: what they are, how they work, and why they’re so important. We’ll also discuss individual tax preparation, individual tax planning, and trust & estate preparation – what each is and how they work. 

What Are Personal Tax Returns? 

A personal tax return is a document you file with the government detailing your income, expenses, and other financial information. The government uses this information to calculate how much taxes you owe.

Most people are required to file a personal tax return each year. If you’re an employee, your employer will typically withhold taxes from your paycheck and send them to the government on your behalf. But if you’re self-employed or have other sources of income, it’s up to you to make sure your taxes are paid.

Business Vs. Personal Tax Returns

It’s important to note that there is a difference between business and personal tax returns. Business tax returns are filed by businesses of all sizes, from sole proprietorships to large corporations. They detail the income and expenses of the business and any taxes owed.

Personal tax returns, on the other hand, are filed by individuals. They detail your income and expenses and any taxes you owe.

How Does a Personal Tax Return Work? 

When you file a personal tax return, you’ll need to include information about your income, deductions, and credits. Your income can come from various sources, such as your job, investments, pensions, or government benefits. You’ll need to report all of this income on your tax return.

You may also be able to claim deductions and credits, reducing the amount of taxes you owe. Deductions are expenses you’ve incurred throughout the year, such as medical expenses or charitable donations. Credits are a bit different – they’re like a reduction in your taxes. For example, there’s a credit for first-time homebuyers, reducing the amount of taxes you owe by up to $750.

Calculate How Much You Owe

Once you’ve calculated your income, deductions, and credits, you’ll need to calculate how much taxes you owe. The government uses a progressive tax system, which means that the more income you have, the higher percentage of taxes you’ll pay. 

The government also offers a variety of tax breaks and incentives for individuals, businesses, and families. These can help reduce the amount of taxes you owe each year.

Why Are Personal Tax Returns Important?

Your personal tax return is a document you file with the IRS each year to report your income, deductions, and other taxes. It’s important to file an accurate and complete tax return because it ensures that you’re paying the correct taxes. It also helps the IRS keep track of your tax liability and prevents you from being audited.

If you’re self-employed, have investment income, or own a business, you’ll need to file a personal tax return and any other required business returns. Personal tax returns are also used to claim certain tax credits and deductions, such as the Earned Income Tax Credit or the Child Tax Credit.

What Is Individual Tax Preparation?

Individual tax preparation is the process of preparing your tax return for filing with the IRS. This can be done yourself using tax software or online tax filing services or by hiring a professional tax preparer.

Filing Your Taxes

There are many different types of taxes that an individual may have to file, including: 

  • Federal income tax 
  • State income tax 
  • City or local income tax 
  • Property taxes 
  • Sales taxes 
  • Estate taxes 
  • Capital gains taxes 

Gather All Your Documents

The first step in individual tax preparation is to gather all of the necessary documents. This includes W-2 forms from employers, 1099 forms from banks and investment firms, and receipts for any expenses that can be deducted. 

Fill Out Your Forms

Once all of the documentation is gathered, the taxpayer or tax preparer will need to fill out the appropriate tax form. The most common form used for individual tax preparation is 1040. This form is used to report an individual’s income, deductions, and credits to the federal government. 

File With The IRS

After the form is completed, it will need to be filed with the IRS. This can be done electronically or by mail. If you choose to file electronically, you must use tax preparation software or visit the IRS website. If you opt to file by mail, you will need to print out and complete the form, then send it to the IRS. 

If you’re not comfortable preparing your own taxes, it’s generally recommended that you hire a professional tax preparer. They can help ensure that your taxes are filed correctly and that you claim all the deductions and credits you’re entitled to.

Types Of Personal Tax Returns

There are two types of personal tax returns in the United States: federal and state. 

Federal Taxes:  You must file a federal tax return if you earn income from any source other than your job. This includes income from investments, self-employment, alimony, child support, pensions, annuities, etc. 

State Taxes: You must file a state tax return if you live in a state that imposes an income tax. Currently, eight states have an income tax: Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, and Georgia.

What Is Individual Tax Planning? 

Individual tax planning is reviewing your financial situation and making adjustments to minimize your tax liability. You can do this throughout the year, not just at tax time. Common strategies include maximizing deductions, contributing to retirement accounts, and investing in tax-advantaged accounts.

Trust And Estate Preparation

Trust & estate preparation is a process that helps individuals and families plan for the distribution of their assets in the event of their death. This process can be complex, and it is important to seek the advice of a qualified professional to ensure that your wishes are carried out according to your desires and the laws of your state.

Individuals who engage in trust and estate planning often do so with the help of an attorney, accountant, or professional tax services. You can use trust and estate planning to minimize taxes, protect assets, and provide for loved ones. Trusts can be created during an individual’s lifetime or after death.

Form 1040

The Personal Tax Return, or Form 1040, is the most common tax form filed by individuals in the United States. It is used to report an individual’s income, deductions, and credits to the federal government. Form 1040 is divided into six sections: 

1) Filing Status 

2) Exemptions and Dependents 

3) Income 

4) Adjustments to Income 

5) Taxes and Credits 

6) Other Payments and Refundable Credits

Individual Taxes Due Date

The due date for filing your tax return is April 15th. However, if you are self-employed or have other special circumstances, you may need to file an extension.

Filing Electronically Or By Mail

You can file your Form 1040 electronically or by mail. If you choose to file electronically, you must use tax preparation software or visit the IRS website. If you opt to file by mail, you will need to print out and complete the form, then send it to the IRS. 

There are many benefits to filing your taxes electronically, including: 

  • You will receive your refund faster.
  • It is more accurate than paper filing. 
  • You can track the status of your return.
  • It is more secure than mailing your return.

Who Is Subject To Personal Income Tax?

All US citizens and residents are subject to paying taxes on their income. The amount of tax you pay is based on your marginal tax rate, which is the rate your last dollar of income is taxed.

There are several different types of taxes that you may be liable for, including federal income tax, state income tax, and local income tax. You may also owe taxes on other types of income, such as interest or dividends.

Other Ways to Report Individual Taxes

Besides filing a personal tax return, there are other ways to report your taxes as an individual. These include:

Filing An Amended Return: You may need to file an amended return if you discover that you made a mistake on your original return or if your financial situation has changed since you filed.

Filing A Delinquent Return: You may need to file a delinquent return if you haven’t filed one in a while. This can happen for various reasons, including forgetting to file, not having the money to pay, or being unable to get the necessary paperwork.

Filing An Extension: You may need to file for an extension if you cannot complete your return by the deadline. Extensions give you additional time to complete your return, but they don’t extend the time you have to pay any taxes owed.

Making A Payment Plan With The IRS: If you can’t pay the full amount of taxes you owe, you can make a payment plan with the IRS. This will allow you to make smaller payments over time rather than one lump sum.

These are just a few ways you can report your taxes as an individual. It’s important to understand what each one entails before taking any action. Talk to a tax professional to determine which method is best for your situation.

Start Preparing For Your Taxes

At Nesso Tax, we firmly believe that everyone should access quality tax preparation and planning services. That’s why we offer a variety of services designed to meet the needs of individuals, families, and businesses. We understand that everyone has different needs regarding their taxes, and we’re here to help.

Whether you need help preparing your personal tax return, planning for your future, or managing your trust or estate, we’re here to assist you. At Nesso Group, we offer a wide range of services designed to meet your unique needs, and our team of experts is always available to answer your questions. Don’t hesitate to reach out now to learn more. 

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