How To Prepare Your Federal Income Tax Returns Properly
Gather All Tax Forms Needed
The first step to making sure that you properly file your income taxes for the year is to gather up all necessary tax forms. Here is a list of common forms and who should receive them:
W-2: Anyone who was employed by someone else should get this form. It will list all income, how much tax was withheld and any deductions from your paycheck throughout the year. This is the most common form used.
1099: If you are self-employed, or worked as an independent contractor, you should get a form 1099. This form will show you all the money you made as an independent contractor for the specific entity you worked for. You get a 1099 form from each entity you did work for over the calendar year. Note that you only need to file taxes if you made more than 600 dollars for the year.
1099K: This is a a new tax form that will list all payments you get from a source like Paypal. This simply helps the IRS keep track of what you were paid, and helps you keep track of your numbers as well.
Once you have the proper income form, you can start doing your federal return.
Figure Out Your Taxable Income
The next step is to figure out what your taxable income is. The process is fairly easy, but should be done carefully to ensure that there are no errors. A good idea is to use a CPA, or use tax software to eliminate errors. To figure out taxable income follow these steps:
Calculate Your Adjusted Gross Income:
To do this, all you have to do is take your gross income for the year, and subtract any qualifying deductions. Qualifying deductions could be anything from business expenses to health care costs to any educational expenses and student loan interest.
Take Your Deductions:
The standard deduction is a lump sum deduction that every taxpayer can take and is 5800 dollars for 2011 for a single filer. You can choose to itemize your deductions to save even more, but most taxpayers are going to find that the standard deduction is worth more.
Your personal exemption is 3700 dollars for the 2011 tax year for a single filer. Having dependents you can claim can increase your exemptions. Keep in mind that deductions cannot bring your taxable income to below 0 for the year.
If you are self-employed you can take a deduction of 1/2 of your self-employment taxes. Remember that as a self-employed individual that you are responsible for paying social security and medicare taxes.
Subtract Any Taxes Already Paid:
After taking deductions, subtract any federal taxes already withheld, or estimated taxes already paid. The final number determines your tax for the year. Anything above 0 is tax you owe, and anything below 0 is your refund amount.
Check Your Return For Accuracy
Once you have filled out all the forms and are ready to file, take a minute to make sure your tax information is correct. Simple mistakes can turn into costly audits, so make sure everything you fill out is accurate.
Check To See That Your Math Is Correct:
Forgetting to claim income that was reported on any tax form, or forgetting to add any investment income you might have forgotten about, can result in an audit. Make sure you claim any income that is eligible to be taxed. Again, using computer software, or seeing a professional tax preparation specialist could be an advantage.
Enter Your Personal Information Correctly:
You cannot get a refund if you have a wrong address put down. It might take more time to verify a return if your name is misspelled, or if an email address isn't written correctly. Make sure your bank account information is accurate so that your refund isn't sent back to the IRS.
Allow For TIme For Payment And Timely Filing
Taxes need to be paid by April 15th most years (April 17th for the 2011 tax year), but you can ask for an extension to file until October. If you are still mulling over different deduction options, or want more time to figure out your filing strategy, this could be a good option. However, if you owe tax, make sure you pay by the April deadline or risk penalties.