The state of Indiana subjects all forms of earned income to taxation, including wages from employment and net self-employment earnings. Some kinds of unearned income are also taxable, such as lottery winnings, retirement distributions, and bank interest. Indiana is one of the few states that excludes a certain amount of unemployment compensation from taxation.http://www.in.gov/dor/4167.htm 

Taxpayers who earn income in Indiana but reside in another state will also need to file an Indiana form. They will complete a nonresident tax form and submit it to the Indiana Department of Revenue. Residents of Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin who earn income in Indiana will have to submit to special tax guidelines. These are also described in the form instructions.http://www.in.gov/dor/4167.htm 

To begin your return, you will need to gather all of your important tax information. This will include the following:

1. Your Social Security number
2. Your complete mailing address
3. The full name and Social Security number of your spouse, if you will be filing a joint tax return
4. Your earned income for the tax year––If you are employed, your total income will appear on your Form W-2 or Form 1099 as taxable wages. If you are self-employed, total your earnings for the year and then deduct your business expenses.
5. Your unearned income that is subject to Indiana state taxation, such as pension payments, capital gains, and rental property income
6. The total of your state income taxes paid for the year––Employees will use the amount of state taxes withheld on Form W-2. Self-employed taxpayers will need to report their estimated tax payments made.
7. A copy of your completed federal income tax return, if you are filing onehttp://www.in.gov/dor/4439.htm 
   

If you will be filing a federal return, you should complete that before you begin your Indiana forms, since the Indiana return uses the amount of your federal adjusted gross income, or AGI, as a starting point for calculating your state taxes.http://www.in.gov/dor/4439.htm  If you will not be completing a federal tax form, see a tax professional to help calculate your AGI.

Locate the IT-40 Form "Individual Income Tax Form" from the Indiana Department of Taxes & Finances website. You can also download the tax form instructions from the website, which can help guide you through the process of filling out your return.http://www.in.gov/dor/4439.htm You can print these off from the website or pick them up form your local library during tax season.

You can also file your return electronically using the Indiana Department of Revenue's I-File website. This method is typically faster and more efficient, so if you have access to the Internet, consider filing your taxes this way.https://secure.in.gov/apps/dor/ifile/ 

To prepare your form manually, begin the form by entering your full name and Social Security number, as well as your spouse's, if applicable. Complete the address section and choose the appropriate filing status and number of exemptions. Be sure to use the same filing status and exemptions as you reported on your federal return.https://secure.in.gov/apps/dor/ifile/ 

At this point, stop and read the instructions carefully. You will need to pay particular attention to the section regarding add-backs and deductions to account for differences in Indiana taxable income and federal taxable income. Be sure to read about the various state tax credits available to you as well.http://www.in.gov/dor/reference/files/it40-annotated.pdf  

Enter the amount of your federal adjusted gross income from IRS Form 1040 on line 1 of the Indiana return. Then make any income adjustments by addition or subtraction on lines 2 through 4 to arrive at your total Indiana income. Complete Schedule 3 to account for your exemptions and then enter the total on line 6. Calculate your Indiana adjusted gross income on line 7.http://www.in.gov/dor/reference/files/it40-annotated.pdf  

Multiply the amount on line 7 by the flat state tax rate of 3.4 percent. Enter the total on line 8 as your total tax owed. Add in other taxes you are subject to on lines 9 and 10. Then subtract your state tax credits and the amount of your state income taxes already paid through withholding or estimated tax payments. What remains will be either a refund on line 21 or an additional balance due on line 26.http://www.in.gov/dor/reference/files/it40-annotated.pdf  

If you are owed a refund, you can choose to receive it by direct deposit. To do so, write in your bank routing number and your personal account number in the boxes provided. Sign and date the completed form and have your spouse do the same, if necessary. Make a copy of the return for your personal records.http://www.in.gov/dor/reference/files/it40-annotated.pdf  

Enclose the return, along with a check or money order for your outstanding balance, in an envelope and send both to the address listed on the form. Be sure to submit them by April 18, 2011. If you will need additional time to file your state return, you will want to learn how to get a state tax extension in Indiana.http://www.in.gov/dor/reference/files/it40-annotated.pdf