The Ultimate Guide to Filing Your Taxes

Everything You Need to File Your Taxes for 2019

You’re almost certainly paying taxes if you work for a regular paycheck. Your employer withholds the taxes you owe from your earnings each pay period and sends them to the appropriate federal and state governments on your behalf. But that's just the first step of the process. A great deal more is involved in filing taxes correctly, and in making sure that you're not paying more than you have to.

Why You Have to File a Tax Return

You'll asked to complete Form W-4 for your employer when you begin a new job. The information you enter on this form determines how much in the way of taxes is withheld from your pay. The decisions you make when you set up your payroll withholding by completing this form can easily result in under- or over-paying your taxes. Payroll withholding usually isn’t exactly right.

The IRS recommends updating your W-4 and withholding requirements whenever you experience a life event that could affect your tax obligation, such as marriage, the birth of a child, or receiving unexpected sources of income.

You’re required to file a tax return every year to come up with a final tally of your tax situation. The process determines whether you owe additional taxes beyond what you’ve already paid, or if you’re owed a refund of the taxes that have been withheld. Your tax return for the tax year is due on or near April 15 of the following year.

Treasury Secretary Steven Mnuchin announced on Friday, March 20, 2020, that the deadline for individual returns for the 2019 tax year is pushed from April 15 to July 15 due to the coronavirus pandemic. The IRS confirmed this on its website on Saturday, March 21, 2020.

You might be able to reduce the taxes you owe—and get a refund of taxes you've already paid—by taking deductions and credits provided for in the tax code. Or you might have had additional income during the year that you’re legally required to report and from which no taxes were withheld. This can result in you owing the IRS more than you've paid.

How to File a Tax Return

You have three choices when it comes to filing your taxes:

  1. You can file manually by completing Form 1040 according to instructions provided by the IRS. Mail the form to the IRS, along with any payment you owe.
  2. You can use a tax software program or the website of a service like TurboTax or H&R Block. They'll walk you through a series of questions about your income and potential deductions, fill out your 1040 based on your responses, and file it electronically for you.
  3. You can get professional help from an accountant or tax professional who will work with you to maximize your refund and fill out your tax return on your behalf.

The first option is free. If you go with the second option, you’ll likely have to pay a fee, although some programs offer free filing if your return is simple enough. The third option—professional help—will almost certainly cost you money.

The Free File partnership between the IRS and select tax preparation companies offers free tax preparation and efiling to taxpayers who earn $69,000 or less as of 2020. You can also download tax forms here as well and complete them yourself if your income is more than $69,000 so you don't qualify for free preparation.

How Tax Brackets Work

How much you must pay in taxes begins with your total or "gross" income from all sources. You can then claim any deductions to which you're entitled to subtract from this total and arrive at your taxable income.

The federal government uses a progressive tax system, which means that the higher your taxable income, the higher your effective tax rate will be. These rates are determined by tax brackets.

For example, you’re in the 24% tax bracket for tax year 2020 if you're single and your taxable income was between $85,525 and $163,300. But only the portion of your income above $85,525 will be charged at that 24% rate.

How Your Taxes Are Calculated

Your employer will give you a Form W-2 after the close of the tax year if you have a regular job. The form details how much you were paid and how much was withheld from your pay for taxes. This information is then transferred to your tax return and determines how much you owe—or are owed—in taxes or a refund.

Self-employed people and independent contractors receive Forms 1099. These don't detail withholding because self-employed taxpayers are responsible for remitting their own taxes as the year goes on. Other 1099 forms might be issued to you from banks or investment firms where you’ve accumulated interest income.

Reducing Income With Tax Deductions

The amount of your income that’s actually taxable can be reduced by claiming tax deductions. For example, you can subtract the amount of a gift you made to a qualifying charity or nonprofit if you itemize your deductions.

This doesn’t mean that your total tax bill is reduced by that amount, but rather that your taxable income is reduced by this much—which, in turn, lowers your effective tax rate.

You can't always deduct all of what you spend. Some itemized deductions, such as for medical expenses and charitable giving, are limited by percentages of your adjusted gross income (AGI). For example, you can only claim an itemized deduction for charitable giving for up to 50% of your AGI, and 20% and 30% limits apply to certain types of gifts.

Tax filers can itemize their deductions, but there’s also a standard deduction that often works out to more than the total of their itemized deductions for many filers. For the 2019 tax year, the standard deductions are:

  • $24,400 for those who are married and file joint returns
  • $12,200 for single taxpayers and those who are married but file separate returns
  • $18,350 for taxpayers who qualify as heads of household

These deductions increase to $24,800, $12,400, and $18,650 respectively in 2020.

Reducing Taxes Owed With Credits

While tax deductions reduce your taxable income, tax credits come directly off what you owe the IRS—dollar for dollar. The Internal Revenue Code provides for several tax credits, from the child tax credit for each of your child dependents to the earned income tax credit, which is designed to provide refunds to low-income taxpayers and families with children.

Refundable tax credits can sometimes result in if any balance is left over after reducing the tax you owe to zero.

You might have owed the IRS $1,000 had you not claimed a $1,500 tax credit. The credit would erase your tax debt and the IRS would send you a refund for the $500 balance if the credit was one of those that are refundable. The IRS would keep that $500 if the credit you claimed was one of the nonrefundable ones, but at least it would erase your tax debt.

Each credit comes with its own qualifying rules, and how you can claim them varies a little as well. For example, you can claim the Child Tax Credit directly on line 13a of your Form 1040 tax return if you qualify, but others must be claimed on Schedule 3, which must accompany your 1040. You would then enter the totals from Schedule 3 on lines 13b or 18d of your Form 1040.

Some tax credits, such as the Additional Child Tax Credit, require their own forms that help you calculate how much you're entitled to and show the IRS how you arrived at that amount.

The qualifying rules for tax credits, particularly the earned income credit, can be complex, so consider checking with a tax professional to be absolutely sure you can claim them. But reputable tax preparation software can also be helpful, asking you a series of questions to determine if you qualify.

Getting Your Refund (or Paying Your Tax Bill)

You’ll be able to determine your tax balance—whether you owe money or if you’re owed a tax refund—after you’ve entered all the relevant information about your income, deductions, and tax credits.

You can send any money due to the IRS and your state’s department of revenue, or you can use one of the online payment options provided by the IRS. Direct Pay allows you to make a direct debit from your bank account payable to the IRS, and the agency accepts credit card payments online as well.

The IRS offers payment plans if it turns out that you owe more than you can pay all at once.

You have a few options for receiving your payment if you're owed a refund, including a mailed check or direct deposit into a bank account. You can even divide your refund into separate bank accounts, or use it to purchase savings bonds from the Treasury Department.

Don't neglect to save a copy of your return for your records—it will come in handy when you’re doing your taxes next year, and it will really come in handy if the IRS has questions or decides to audit you

Article Sources

  1. IRS. "Tax Withholding: How to Get It Right." Accessed May 15, 2020.

  2. IRS. "About the IRS Free File Program." Accessed May 16, 2020.

  3. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2020." Accessed May 16, 2020.

  4. IRS. "Form W-2 Wage and Tax Statement 2020." Accessed May 16, 2020.

  5. IRS. "Charitable Contribution Deductions." Accessed May 16, 2020.

  6. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2019." Accessed May 16, 2020.

  7. IRS. "Credits and Deductions for Individuals." Accessed May 16, 2020.

  8. IRS. "Apply Online for a Payment Plan." Accessed March 20, 2020.

  9. IRS. "What to Expect for Refunds This Year." Accessed May 16, 2020.

  10. IRS. "Using Your Income Tax Refund to Save by Buying U.S. Savings Bonds." Accessed May 20, 2020.