Tax & regulations How to file your taxes: Everything you need to know

Filing taxes is a crucial annual task that every taxpayer must navigate. This process involves assessing your income, deductions and credits to determine the amount owed or refunded. Whether you choose to file independently, use online platforms or seek professional guidance, being well-prepared is key to a smooth experience.

Save your paperwork throughout the year

Before diving into the filing process, it's imperative to organize and save all relevant paperwork, including income statements, receipts and any other documents necessary for accurate reporting. Having the necessary documents on hand will not only streamline the process but also help to ensure accuracy in your filings.

Be sure to hold onto income statements, such as W-2s, 1099s; expense receipts, such as medical bills, education expenses or business-related costs; proof of contributions, such as contributions made to retirement accounts, health savings accounts (HSAs) or charitable organizations; and property and investment documents, such as mortgage interest statements, property tax statements and records of investment transactions.¹

Keep a folder at home or on your computer with all of these documents. Then, when it comes time to file your taxes, it’s all ready to go and you don’t have to spend days or weeks chasing down all the paperwork you need, and nothing will slip through the cracks throughout the year either.

How to calculate your taxes

Understanding how to calculate your taxes is fundamental. This involves assessing your income, applying relevant deductions and credits and ultimately, the amount you owe or the refund you can expect. Here’s a simplified guide on how to do it:

Determine your filing status: Your filing status is generally decided based on whether you are married, single or married and filing separately²

Determine your gross income: Begin by calculating your gross income. This includes your salary, wages, self-employment income, rental income and any other sources of income. For employees, a certain portion of this information is typically found on your W-2 forms.³ Recall that gross income means all income from whatever source derived so your income may include items not reported to you on a tax form, such as cash received from the sale of personal property.⁴

Identify adjustments to income: Explore potential adjustments to income in order to arrive at your adjusted gross income, also known as "above-the-line" deductions. These can include contributions to retirement accounts, student loan interest and HSA contributions. These expenses come out of your income as “adjustments” before you subtract itemized or standard deductions.⁵ Subtracting these adjustments from your gross income gives you your adjusted gross income (AGI).⁶

Explore tax credits: Identify tax credits for which you qualify. Common credits include the Child Tax Credit, Earned Income Tax Credit and education credits. Tax credits generally directly reduce dollar-for-dollar the amount of tax you would otherwise owe, so they may be particularly valuable.⁷

Deduct standard or itemized deductions: Decide whether to take the standard deduction or to itemize deductions based on your financial situation. When calculating your deductions, you generally have a choice between taking either the standard deduction or itemizing your deductions. The standard deduction is a specified fixed dollar amount that people may claim (generally, if the itemized deductions are less than the standard deduction). Common itemized deductions include mortgage interest and charitable contributions. Subtracting deductions from your AGI gives you your taxable income.⁸

Apply the appropriate tax rate: Refer to the tax brackets for your filing status to determine the applicable tax rate for your taxable income. The U.S. tax system is progressive, meaning different portions of your income are taxed at different rates.⁹

Factor in other taxes: Consider other taxes, such as the Medicare tax, self-employment tax and the Net Investment Income Tax, if applicable. These can affect your overall tax liability.^{10, 11, 12}

Calculate your tax liability: Multiply your taxable income by the applicable tax rate to calculate your U.S. federal income tax liability. If you had taxes withheld from your paycheck or made estimated tax payments, subtract these amounts to determine if you owe additional taxes or are entitled to a refund. The IRS also offers tools to help you determine this.¹³

Check for additional state taxes: If you reside in a state that imposes income tax, calculate your state tax liability using the process applicable to that state. Note that the tax rules may vary by state and that some states have their own particular tax credits and deductions.

Review your return: Before finalizing your return, review all calculations and ensure accuracy. Small errors can lead to discrepancies in your tax liability.

Choose how you want to file

When it’s time to file your taxes, there are various methods available. Here are a few of the primary options:

Self-filing with Form 1040:

• How it works: For those who prefer a hands-on approach, self-filing involves completing IRS Form 1040 manually. This traditional method allows you to navigate the tax return at your own pace.
• Pros: More control over the process, useful for simple financial situations
• Cons: May be time-consuming, less guidance for complex tax scenarios¹⁴

Online filing (e-file or working with a tax advisor online):

• How it works: Utilize online platforms to electronically file your taxes. This includes e-filing independently or working with a tax advisor virtually through email, virtual meetings or phone consultations.
• Pros: Convenient, possibly more efficient, and often provides step-by-step guidance. Virtual tax advisors generally offer expert assistance without the need for in-person meetings.
• Cons: Potential costs associated with using some online platforms or professional tax advice¹⁵

Working with a tax advisor (in person):

• How it works: Opt for a more personalized experience by working with a tax advisor in person. This generally involves scheduling an appointment and may require bringing your documents to a tax professional’s office.
• Pros: Expert guidance, more tailored advice and the ability to ask questions in real-time
• Cons: May require scheduling and attending an in-person meeting. Professional assistance may come with associated costs.¹⁶

Ultimately, the method you choose should align with your comfort level, preferences, and the complexity of your financial situation. Whether you prefer the independence of self-filing, the convenience of online platforms or the expertise of a tax advisor, the key is to select the option that best suits your needs and ensures accurate and efficient tax filing.

Be aware of deadlines

Filing your taxes promptly is crucial to avoid penalties and help ensure a smooth process. Here's a guide to some of the deadlines you need to be aware of, along with tips on when to retrieve necessary paperwork:

Federal income tax deadlines:

• Individual income tax returns (Form 1040): The deadline for filing federal individual income tax returns is typically April 15. If the 15th falls on a weekend or holiday, the deadline is usually extended to the next business day.
• Extension request: If you need more time, you can generally file for an extension, pushing the deadline to October 15. However, remember that this extension applies only to the filing of the return, not the payment of taxes owed.¹⁷

State income tax deadlines:

• State deadlines vary: State tax deadlines vary by state. Check with your state's tax agency to determine the specific due date for your state income tax return. Some states align their deadlines with the federal deadline, while others may have different dates.

For a lower stress filing experience, it is generally a good idea to start gathering your paperwork well before the deadline. If you try to file your taxes the week of tax day or the day of, and then you realize you’re missing crucial forms, you might not be able to file your taxes on time. Beginning the tax filing process well in advance of the deadline can help to avoid last-minute stress. If you plan to work with a tax advisor, schedule appointments early to ensure availability, especially as the tax deadline approaches.

The bottom line

When it comes to filing your taxes, preparation is key. Start early, be mindful of deadlines and choose a filing method that suits your comfort level. Get a head start today by locating any paperwork that you may need when it comes time to file your taxes and setting it aside in a folder. Whether you opt for the independence of self-filing, the convenience of online platforms or the expertise of a tax advisor, staying organized and informed can lead to a smoother journey to financial clarity.