How to File Your Taxes

Preparing your taxes can seem like a daunting task, but it doesn't have to be. There are dozens of resources out there to help you through the process, and if you take the time to organize your records before you begin, preparing your taxes can even be fun. (Well, not fun, but it can be relatively painless.)
How to file your taxes will walk you through the different methods of tax preparation, what you'll need to get started and how to prepare and file your return.

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How Tos

Tax Preparation Options
- You have several options when it comes to preparing your tax return.
1. Manually: You can prepare your taxes the old-fashioned way with paper and pencil. You'll need to download the correct forms from the IRS website or pick them up at your local library.
2. Electronically: You can prepare your taxes using either tax preparation software or an online service such as TurboTax or H&R Block's TaxCut. Prices vary depending on the complexity of your return. If you meet certain income requirements, you can file online for free by using the IRS Free File service.
3. Tax Professional: You can pay a professional to prepare your taxes for you. You can go to a national tax preparation chain like H&R Block or Jackson Hewitt or enlist the services of an enrolled agent, a certified public accountant or tax attorney. Prices vary depending on the complexity of your return.
  - -Locate an Enrolled Agent through the National Association of Enrolled Agents' Agent Search.
  - -Locate an IRS authorized E-File Provider via the IRS Provider Locator. (This simply means that the tax preparation service is equipped to submit your return directly to the IRS electronically.)
Should You Prepare Your Own Taxes?
- Whether or not you prepare your own taxes or have a professional step in depends on a number of different factors.
- Consider self-filing if any of the following apply to you:
1. You are generally familiar with the tax-filing process.
2. You are comfortable researching any questions that may arise as you do your taxes.
3. You are organized and keep good financial records.
4. You haven't moved in the past year and have had only one employer.
5. You are computer literate and won't have trouble following the prompts of an online service like TurboTax.
- Consider visiting your local H&R Block or hiring a professional financial advisor if any of the following apply to you:
1. You are intimidated by the tax-filing process.
2. You don't have the time to devote to preparing your taxes.
3. You've had a major change in your life—death of a spouse, started a business—that makes filing this year more complicated.
4. You are self-employed and have income coming in from multiple sources.
5. You want the protection of an agent enrolled with the IRS should you be audited. (An enrolled agent, who has passed an IRS-administered exam, can represent you before the IRS in case of an audit.)
Advantages to Filing Electronically
- If you decide to self-file, you might want to consider filing electronically quite a few good reasons:
1. Accuracy: Filing electronically increases the accuracy of your return. This is important because inaccuracies are one of the red flags that can trigger an audit.
2. Simplicity: Online tax services like TurboTax make filing a breeze by literally walking you through every step and preparing whatever schedules and forms are appropriate.
3. Efficiency: Not only can you file your federal and state returns simultaneously, they'll be filed instantly. You'll receive an immediate receipt for your return, and your refund will be processed within a matter of days.
- - NOTE: If your income is low enough, you may not have to file an income tax return. Refer to IRS Publication: Exemptions, Standard Deduction and Filing Information (501) or Smart Money's "In Some Cases, You Don't Need to File a Tax Return" for more information.
Where to Turn for Help
- If you can't afford the help of a tax professional and need help preparing your return, there are several free resources available to you:
1. IRS: The IRS is actually the single best place to turn when you have a tax-related question. In addition to their comprehensive website, they offer both a recorded information service (1.800.829.4477) and a live assistance line (1.800.829.1040).
1. AARP Tax-Aide: The AARP Tax-Aide program offers free tax counseling and basic income tax return preparation for senior citizens and other qualified individuals. Learn more about the Tax-Aide program via the AARP's website.
2. VITA: The Volunteer Income Tax Assistance (VITA) program matches certified volunteers with low-to-moderate income individuals who need help preparing their tax returns. To locate the nearest VITA site to you, call 1.800.829.1040.
Step 1: Gather Your Tax Records
- Whether you're preparing your own taxes or having someone prepare them for you, you'll need to collect all of your financial records before you begin.
The Basics
- What you need to do your taxes will depend on how you make your money, the types of investments you have, whether you intend to itemize your deductions and a number of other factors. The following is a list of the basic information you'll need to start your tax return:
1. Social Security Numbers: For you, your spouse (if you're filing jointly) and any dependents.
2. W-2 Forms: You will receive a W-2 form, a statement of the wages you earned for the year, from your employer. You should receive your W-2 by January 31st. If you have not received your W-2 by then, contact your employer. If you are filing jointly with your spouse, you will need to collect the W-2 forms from both of your employers.
3. 1099 Forms: 1099s are forms you receive for dividends, retirement accounts, scholarships and other forms of income. If you are self-employed, you will receive 1099s from the companies you worked for in the past year reporting any money you earned as an independent contractor.
4. Receipts: If you plan on deducting any expenses or charitable contributions from your taxable income, you will need to have those receipts on hand.
  - If you are bringing your receipts to a tax preparer, take the time to organize them into useful categories like medical expenses, mortgage interest, business-related expenses, etc.
5. Bank Account Numbers: If you are filing electronically and wish to receive any refund you might be due by direct deposit, you will need your bank's routing number and your bank account number.
6. Adjusted Gross Income from the Previous Tax Year: You will need last year's tax return to accurately complete this year's.
Self-Employment Documents
- Receipts and Documentation for all Business-Related Expenses
Step 2: Determine Your Filing Status
- The IRS requires that you identify your tax status in one of the following five ways:
1. Single: If, on the last day of the tax year, you were unmarried or legally separated, your filing status is "single." ^[1]
2. Married Filing Jointly: You and your spouse report your incomes on one tax return. You are both required to sign the return. ^[2]
  - Due to the passage of the Federal Defense of Marriage Act in 1996, gay and lesbian couples cannot file joint federal tax returns. However, legally-married couples in Massachusetts can file a state return jointly. Other states dictate civil unions and domestic partnerships differently. Consult About.com's Tax Tips for Gays, Lesbians and Same-Sex Couples for state-by-state rulings on joint filing.
3. Married Filing Separately: If it reduces your tax bill, you and your spouse can file separately. You and your spouse are then each responsible for your own taxes. ^[3]
4. Head of Household: Head of Household is a special status, which entitles you to a lower tax rate. You may be able to file as "head of household" if you are single, paid more than half the cost of keeping up a home and have a "qualifying person" such as child living in your home for more than half the year. ^[4]
5. Qualifying Widow(er) with Dependent Child: This status may apply to you if your spouse died in either of the two preceding tax years and you have a dependent child. ^[5]
- Your filing status typically refers to your situation on the last day of the tax year. If you are having trouble figuring out your filing status, consult IRS Tax Topic: What Is Your Filing Status? (353) or Smart Money's "What's Your Filing Status?".
Step 3: Choose the Correct Forms
- If you're having a pro or an online service like TurboTax prepare your return, you won't need to download any forms from the IRS or pick them up at the library. In fact, these services will automatically determine which forms you need to file. If you're going the paper and pencil route, however, you're on your own. Here's a rundown of the basic IRS forms to get you started:
How to Calculate Gross Income
- The forms provided by the IRS, your tax preparation software or the person preparing your taxes will actually walk you through calculating your gross income.
1. When prompted by the software, your accountant or IRS Form 1040, supply the income figures documented on your W-2s, 1099s and any other applicable documents.
  - If you are doing your return by hand, you will write these figures into Form 1040 on Lines 7-22.
2. If you are doing your return by hand, you will need to physically attach your W-2s to this part of the form.
- Form 1040 (Opens as a PDF document.)
- Form 1040 Instructions (Opens as a PDF document.)
How to Calculate your Adjusted Gross and Taxable Income
- The forms provided by the IRS, your tax preparation software or the person preparing your taxes will actually walk you through calculating this number.
1. When prompted by the software, your accountant or IRS Form 1040, supply the relevant adjustment, deduction, credit and exemption figures. (The difference between these types of adjustments is described below.)
  - If you are doing you return by hand, you will write these figures into Form 1040 on Lines 23-43.
2. Subtract your adjustments, credits and deductions from your gross income to arrive at your taxable income. (Line 43 on Form 1040.)
- Form 1040 (Opens as a PDF document.)
- Form 1040 Instructions (Opens as a PDF document.)
- The following describes the types of adjustments you can make to arrive at your taxable income:
Resources for How to Do Your Taxes
IRS Tax Topics
How to Read a Tax Table
1. Find your taxable income's range on the lefthand side of the table. ("At least X, but less than X.")
2. Read across the table to the amount indicated in the column which represents your filing status (single, married filing jointly, etc.)
3. That amount is your tax for the year.
- Whether or not you owe the government money or can expect a fat refund check in the mail all depends on how much tax you had withheld from your paychecks throughout the year.
- The amount that's been withheld will be indicated on your W-2(s). Your 1040, tax preparation software or accountant will ask you for that number and subtract it from the amount of tax you owe. If the resultant number is negative, you're owed a refund. If it's not, time to pay the piper.
Step 7: File Your Tax Return
- Now that you have your forms filled out and your tax calculated, it's time to file your return and pay your taxes.
Mailing Your Return
1. Be sure that you have filled out all the necessary forms and related schedules.
2. Check the forms for accuracy, and remember that you must have documentation on file for any deduction you claim.
3. Sign and date your return.
4. Attach all the required documents to your tax return including your W-2s.
5. Make a copy of the return for your records.
6. Download or obtain IRS Payment Voucher Form 1040V.
7. Complete Form 1040V specifying a method of payment, if you owe the IRS money.
8. Mail Form 1040V, your tax return and any related documents to the IRS via certified mail.
  - The correct mailing address can be obtained by consulting the last page of the Form 1040 instruction booklet provided by the IRS.
9. Using the numbers you generated on your federal return, you must now complete and file your state return according to your state's tax laws.
- Form 1040 (Opens as a PDF document.)
- Form 1040 Instructions (Opens as a PDF document.)
- Form 1040V: Payment Voucher (Opens as a PDF document.)
Filing as a Sole Proprietor or LLC
- If you're self-employed, you have some special issues to take into consideration come tax time. Meet Schedule C and its friend Schedule SE. You're about to become very familiar with them.
Online Tax Calculators
IRS Resources
Decreasing Your Chance of Being Audited
- Anyone who files a tax return faces a slim chance of being audited. The odds of your return being selected for a random audit are roughly 1 in 3,000. You are much more likely to be audited, however, if you fall into one of the following categories:
1. Cash Businesses: The IRS knows that many people in "cash businesses" don't declare their full income. So, if you're a bartender, waiter or hairdresser, you should report all of your earnings. Your occupation is a red flag to the IRS. ^[1]
2. Doctors, Lawyers and Accountants: These types of professionals typically run their own businesses and do their own bookkeeping. The IRS may want to see documentation of all deductions and expenses. ^[2]
3. Large Deductions: The IRS will carefully examine the returns of people taking unusually large deductions or who are involved in questionable investments. ^[3]
- The IRS is also likely to question the following types of deductions:
1. Medical and Casualty Deductions: Because tax law mandates that certain deductions must exceed a minimum percentage of your income before you can claim them, only a small number of people actually qualify for them. If you claim these types of deductions, keep careful records backing them up. ^[4]
2. Charitable Contributions: If you deduct more than the statistical norm for this type of deduction, you may be audited. Be sure that you keep a a canceled check or letter from the charity on file documenting any single donation of $250 or more. ^[5]
3. Home Office Deductions: Keep incredibly accurate records of any home office deductions you claim. Just because you check your work email from home does not make it a home office. ^[6]
- There's no way to absolutely ensure that you won't be audited as some filers are chosen at random for the honor. However, you can ensure that any interactions you have with the IRS are above board and stress-free:
1. Don't Rush: Take your time filling out your tax return, get professional help and check your return for accuracy.
2. Be Honest: Report all of your income. Don't take questionable deductions.
3. Keep Good Records: The burden of proof in an audit is on you. Keep immaculate records. You should have a receipt for every deduction you claim.
  - Keep your records for at least three years after the filing deadline. The statute of limitation for assessing additional taxes typically runs three years from the date you file your return. ^[7]
4. Ask for Help: If you are itemizing, are self-employed or just don't have a head for numbers, get help from a professional when preparing your taxes. Enrolled agents can represent you in an audit, and online services like TurboTax offer audit-related services.
File Taxes Online
Requesting an Installment Plan
Filing for an Extension
Exemptions
- For more information about exemptions, refer to IRS Publication 501: Exemptions, Standard Deduction and Filing Information.
- An exemption allows you to reduce your taxable income by a set amount. You are typically allowed one tax exemption for yourself and, if you have dependents, one tax exemption for each dependent.
Above the Line Deductions
- There are certain deductions you are allowed to take whether you decide to itemize or not. These include IRA contributions, moving expenses, student loan interest and, for the self-employed, health insurance. (The line being referred to is Line 37 on Form
- Online tax services like [[TurboTax]] and professional tax preparers will prompt you with questions to figure out if you qualify for any of these deductions. If you are doing your taxes independently, follow the instructions provided by the IRS and consul

Categories

Tax Preparation Options

Should You Prepare Your Own Taxes?

Advantages to Filing Electronically

Where to Turn for Help

Step 1: Gather Your Tax Records

The Basics

Self-Employment Documents

Step 2: Determine Your Filing Status

Step 3: Choose the Correct Forms

How to Calculate Gross Income

How to Calculate your Adjusted Gross and Taxable Income

Resources for How to Do Your Taxes

IRS Tax Topics

How to Read a Tax Table

Step 7: File Your Tax Return

Mailing Your Return

Filing as a Sole Proprietor or LLC

Online Tax Calculators

IRS Resources

Decreasing Your Chance of Being Audited

File Taxes Online

Requesting an Installment Plan

Filing for an Extension

Exemptions

Above the Line Deductions