Tax return

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German tax forms Mantelbogen.JPG
German tax forms

A tax return is a form on which a person or organization presents an account of income and circumstances, used by the tax authorities to determine liability for taxes. [1] [2]

Contents

Tax returns are usually processed by each country's tax authority, known as a revenue service, such as the Internal Revenue Service in the United States, the State Taxation Administration in China, and HM Revenue and Customs in the United Kingdom.

Preparing the tax return

A tax return reports income, expenses, tax payments made during the year and other relevant information to the taxing authority. It helps to determine whether a tax refund is due. This will depend on whether a person has overpaid on taxes, or was late in paying tax for previous years. [3]

A person or organization may not be required to file a tax return depending on circumstances, which are different in each country. Generally, a tax return does not need to be filed if income is less than a certain amount, but other factors such as the type of income, age, and filing status also play a role. Occasionally, there may be situations where the tax return need not be filed, but is filed anyway to receive a tax refund. [4]

The tax return is not necessarily the final calculation; it may be accepted or not accepted as correct by the government authority. [5]

The time and effort involved in filing a tax return varies from country to country, but governments try to help citizens in different ways. Many governments utilize electronic filling and payment systems that keep a record of a person's history of tax returns and refunds. Another notable change in recent years is that government bodies share the data with each other. Within several European nations such as Denmark and Sweden, governments already provide citizens with prefilled return forms, which a citizen would sign if accurate, and if not, can fix the error on their own or prepare returns themselves. [6] In Denmark and Sweden, 97% and 74% of taxpayers had their forms prefilled by tax authorities respectively in 1999. [7]

The length of the completion of a tax return depends on the country, but the world average is almost 232 hours. [8]

Components of a tax return

A tax return usually includes the following components.

Income consists of the sources of a citizen's revenue, excluding items which are exempt from tax by law. Wages, salaries, income from retirement plans, dividends, interest and capital gains or losses should be considered as a source of revenue. [9] [10] [11]

Taxable income includes wages, salaries, rental income, dividends, and business profits, after deducting any allowable deductions. In Australia, the concept of taxable income is central to determining the amount of income tax you are liable to pay. [12]

Deductions are items that are subtracted from taxable income, thereby reducing the tax liability. [13] For organizations, most expenses specifically identified with business tasks are deductible. Examples of tax deductions include mortgage interests, student loan interest, contributions to saving plans for retirement etc. In general, taxes paid will be less when the taxpayer chooses the larger of itemized deductions or the standard deduction. [14] The standard deduction varies according to filing status. In the United States, the standard deduction is higher for older taxpayers (65 and above). If the taxpayer chooses to itemize, such deductions are recorded on Schedule A. Itemized deductions should be supported by documentation which the taxpayer retains after filing the tax return. [15]

Tax credits reduce the amount of paid to government entities. Tax credits are more impactful than deductions because they directly reduce the amount of tax owed. If a person has $500 in tax credits, and the tax owed is $500, the tax credits will reduce a person's liability to zero. Tax credits arise from multiple areas. For example, a person may receive a Child Tax Credit if they care for a child under the age of 13. Education expenses might be treated as a tax credit in some countries, such as the American Opportunity Tax Credit in the United States. [16] The AOTC can cover up to four years of a full-time student in a post secondary school. Depending on your income, you can earn up to $2,500 of the cost of qualified tuition and course material paid during the tax year.

Payments and refunds include estimated tax payments and amounts withheld from your paycheck. If you've overpaid your taxes, you'll receive a refund. [17]

Tax schedule

Tax schedule used to report capital gains in the USA Tax schedule d usa.jpg
Tax schedule used to report capital gains in the USA

In the United States, a tax schedule is a form that the Internal Revenue Service (IRS) requires taxpayers to fill out in addition to the tax return. It is a tool that reports and provides information about the additional calculations and other amounts stated in the tax return. [18] These generally include information on amounts such as capital gains and losses, mortgage interest, interest income or charitable contributions.

Tax schedules are used by both taxpayers and taxation authorities such as the IRS. Simple tax returns can be filed using the Form 1040 whereas complex tax returns additionally require a tax schedule to be completed with the tax return. There are different types of schedules such as Schedule A, Schedule B, Schedule C, Schedule D, Schedule EIC, and Schedule SE. Specific tax forms can be used by taxpayers or private entities that are required to report information on their tax liabilities, including income earners, businesses, and companies. [19]

See also

Related Research Articles

<span class="mw-page-title-main">Form 1040</span> IRS tax record

Form 1040, officially, the U.S. Individual Income Tax Return, is an IRS tax form used for personal federal income tax returns filed by United States residents. The form calculates the total taxable income of the taxpayer and determines how much is to be paid to or refunded by the government.

<span class="mw-page-title-main">Taxation in the United States</span> United States tax codes

The United States has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP.

A tax deduction or benefit is an amount deducted from taxable income, usually based on expenses such as those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. The difference between deductions, exemptions, and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax.

Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and are claimable in place of a standard deduction, if available.

Under United States tax law, the standard deduction is a dollar amount that non-itemizers may subtract from their income before income tax is applied. Taxpayers may choose either itemized deductions or the standard deduction, but usually choose whichever results in the lesser amount of tax payable. The standard deduction is available to individuals who are US citizens or resident aliens. The standard deduction is based on filing status and typically increases each year, based on inflation measurements from the previous year. It is not available to nonresident aliens residing in the United States. Additional amounts are available for persons who are blind and/or are at least 65 years of age.

A pay-as-you-earn tax (PAYE), or pay-as-you-go (PAYG) in Australia, is a withholding of taxes on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may include withholding the employee portion of insurance contributions or similar social benefit taxes. In most countries, they are determined by employers but subject to government review. PAYE is deducted from each paycheck by the employer and must be remitted promptly to the government. Most countries refer to income tax withholding by other terms, including pay-as-you-go tax.

Tax returns in the United States are reports filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency containing information used to calculate income tax or other taxes. Tax returns are generally prepared using forms prescribed by the IRS or other applicable taxing authority.

Tax brackets are the divisions at which tax rates change in a progressive tax system. Essentially, tax brackets are the cutoff values for taxable income—income past a certain point is taxed at a higher rate.

In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income minus specific deductions. It is used to calculate taxable income, which is AGI minus allowances for personal exemptions and itemized deductions. For most individual tax purposes, AGI is more relevant than gross income.

Three key types of withholding tax are imposed at various levels in the United States:

A tax refund or tax rebate is a payment to the taxpayer due to the taxpayer having paid more tax than they owed.

<span class="mw-page-title-main">Income tax in the United States</span> Form of taxation in the United States

The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.

Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending March 31, 2018, the federal government collected just over three times more revenue from personal income taxes than it did from corporate income taxes.

Tax preparation is the process of preparing tax returns, often income tax returns, often for a person other than the taxpayer, and generally for compensation. Tax preparation may be done by the taxpayer with or without the help of tax preparation software and online services. Tax preparation may also be done by a licensed professional such as an attorney, certified public accountant or enrolled agent, or by an unlicensed tax preparation business. Because United States income tax laws are considered to be complicated, many taxpayers seek outside assistance with taxes.

The United States Internal Revenue Service (IRS) uses forms for taxpayers and tax-exempt organizations to report financial information, such as to report income, calculate taxes to be paid to the federal government, and disclose other information as required by the Internal Revenue Code (IRC). There are over 800 various forms and schedules. Other tax forms in the United States are filed with state and local governments.

<span class="mw-page-title-main">Earned income tax credit</span> Refundable tax credit for low-to-middle class individuals in the U.S.

The United States federal earned income tax credit or earned income credit is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children. Low-income adults with no children are eligible. For a person or couple to claim one or more persons as their qualifying child, requirements such as relationship, age, and shared residency must be met.

<span class="mw-page-title-main">Internal Revenue Service</span> Revenue service of the US federal government

The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax law. It is an agency of the Department of the Treasury and led by the Commissioner of Internal Revenue, who is appointed to a five-year term by the President of the United States. The duties of the IRS include providing tax assistance to taxpayers; pursuing and resolving instances of erroneous or fraudulent tax filings; and overseeing various benefits programs, including the Affordable Care Act.

The alternative minimum tax (AMT) is a tax imposed by the United States federal government in addition to the regular income tax for certain individuals, estates, and trusts. As of tax year 2018, the AMT raises about $5.2 billion, or 0.4% of all federal income tax revenue, affecting 0.1% of taxpayers, mostly in the upper income ranges.

In the United States, an income tax audit is the examination of a business or individual tax return by the Internal Revenue Service (IRS) or state tax authority. The IRS and various state revenue departments use the terms audit, examination, review, and notice to describe various aspects of enforcement and administration of the tax laws.

The United States federal state and local tax (SALT) deduction is an itemized deduction that allows taxpayers to deduct certain taxes paid to state and local governments from their adjusted gross income.

References

  1. ↑ "(income) tax return – noun". Merriam-Webster Dictionary. Merriam-Webster, Incorporated. Archived from the original on 23 June 2023. Retrieved 13 May 2024.
  2. ↑ Stevenson, Angus (editor) (2010). Oxford Dictionary of English (Third ed.). Oxford, United Kingdom: Oxford University Press. p. 1823. ISBN   9780199571123.{{cite book}}: |first1= has generic name (help)
  3. ↑ "What Is a Tax Refund and Why Do You Get One?". SmartAsset. 22 January 2021. Archived from the original on 9 April 2021. Retrieved 28 March 2021.
  4. ↑ "Does Everyone Need to File an Income Tax Return?". turbotax.intuit.com. Archived from the original on 14 November 2022. Retrieved 28 March 2021.
  5. ↑ "Tax Return". Legal Information Institute. Cornell Law School. Retrieved 14 May 2024.
  6. ↑ Huseman, Jessica (20 March 2017). "Filing Taxes Could Be Free and Simple. But H&R Block and Intuit Are Still Lobbying Against It". propublica.org. Archived from the original on 30 June 2022. Retrieved 30 June 2022.
  7. ↑ "What other countries use return-free filing?". taxpolicycenter.org. Archived from the original on 5 June 2022. Retrieved 30 June 2022.
  8. ↑ "Time to prepare and pay taxes (hours) | Data". data.worldbank.org. Archived from the original on 3 March 2021. Retrieved 27 March 2021.
  9. ↑ Instructions, 1040 and 1040-SR, Tax Year 2023 (PDF). Department of the Treasury, Internal Revenue Service. p. 22.
  10. ↑ "Policy Basics: Where Do Federal Tax Revenues Come From?". Center on Budget and Policy Priorities. 20 August 2012. Archived from the original on 8 November 2020. Retrieved 1 November 2020.
  11. ↑ Motiani, Preeti. "ITR filing: Computing your total taxable income | How to calculate income tax". The Economic Times. Archived from the original on 19 March 2022. Retrieved 19 March 2022.
  12. ↑ Zaheer, Jaxon Rylah, Kinza (16 June 2023). "Understanding Tax Returns in Australia: In Depth Overview". Taxly.ai. Archived from the original on 14 November 2023. Retrieved 14 November 2023.{{cite web}}: CS1 maint: multiple names: authors list (link)
  13. ↑ Merriam Webster Dictionary op. cit. "Deduction – noun".
  14. ↑ "Instructions, 1040 and 1040-SR, Tax Year 2023 op cit p. 31".{{cite web}}: Missing or empty |url= (help)
  15. ↑ "Taxpayers should know the difference between standard and itemized deductions | Internal Revenue Service". www.irs.gov. Archived from the original on 6 May 2022. Retrieved 19 March 2022.
  16. ↑ CNBC.com, Jennifer Woods, special to (11 April 2016). "The top 10 tax credits that should be on your radar". CNBC. Archived from the original on 30 November 2020. Retrieved 2 November 2020.{{cite web}}: CS1 maint: multiple names: authors list (link)
  17. ↑ "Mastering IRS Tax Form 1040: U.S. Individual Tax Return". 11 September 2023. Archived from the original on 1 October 2023. Retrieved 29 November 2023.
  18. ↑ "What Is a Tax Schedule?". The Balance. Archived from the original on 19 May 2022. Retrieved 19 March 2022.
  19. ↑ Office, Australian Taxation. "Income tax return". www.ato.gov.au. Archived from the original on 22 August 2018. Retrieved 22 August 2018.
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