Income Tax is a form or forms used to file income tax with the income tax department. The income tax return is usually prepared in a predefined sheet format or template, where the income figure that would be used to calculate the tax liability or owed are written in the documents themselves. It is the law that tax return must be filed on a yearly basis for every individual or business that received or generated income during the year regardless of the means, whether through interest, wages, dividends, capital gains, etc., income tax return must be filed. And this tax returns regardless of if it is an individual or a business must be filed by a specific date.
Although, not everyone is required to file and income tax on a yearly basis. Generally your income must exceed a certain threshold for you to be eligible to file an income tax, if your income doesn’t exceed this threshold, then you do not need to file an income tax. The standard tax deductions amount or income threshold are fixed by the government each year before the tax filing seasons and they generally increase each year to give room for inflations. Moreover the amount of income that you can earn before you file an income tax depends on three major characteristic; your age, type of income and your filing status.
There are a variety of income tax return, so you should endeavor to use the tax form that corresponds with your particular situation, which allows you to claim income, deductions, refunds and credits due to you. In the United States, individuals the variations of the Internal Revenue System Form’s 1040 – (which include the long and short form for individual income tax, Income Tax for Single and Joint Filters With No Dependents, U.S. nonresident alien income tax, and US. Income Tax Return for Certain Nonresidents with No Dependents) – Corporations will make use of the IRS Form 1120 to file tax returns, Partnerships will use Form !065 and Investment Income would be filed using Form 1099.
Generally, the tax return filing process begins with filling out personal information, filing status and residency status, social security numbers, date of birth, a copy of past tax return, statement of wages earned, statement of interest or dividend from bank, proof of any tax credit, deductions or exclusions and your bank account and routing number. After providing this information, there are three basic sections of a tax return;
- the income section; here, all sources of incomes are listed and the most common is a W-2 tax form. Wages, dividends, interest, capital gains, royalties and any source of income must be reported.
- deductions; generally this decreases liability. Usually, this varies among prerogatives. Taxpayers can itemize deductions in their filing status, and once these deductions are subtracted, the taxpayer can determine the tax due on their modified gross income.
- tax credits; these are amount that offset tax liability or the amount of tax owed. Like deductions they vary and are subject to interpretations and calculations by the authorities. However they are often credit attributed to care of dependents, pensions, educations, etc. Tax credit shouldn’t be mistaken for refund. A tax refund is issued when the amount of tax you paid is more than what you really owe for that year.
Once you have reported income, deductions and credits, the tax payer ends his tax returns. Upon ending the tax return, the amount owed or overpaid is identified. Overpaid amount maybe refunded or rolled