While this can seem daunting, learning how to file your taxes is important because you’ll need to do it every year (for the most part). In this guide, learn why and how you have to file a tax return, as well as other important aspects of the filing process you need to know.
Why You Have To File a Tax Return
When you begin a new job, you’ll be asked to complete Form W-4 for your employer. The information you enter on this form determines how much tax is withheld from your pay. The decisions you make when you set up your payroll withholding by completing this form can easily result in underpaying or overpaying 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 taxes beyond what you’ve already paid, or whether you’re owed a refund of the taxes that have been withheld. Your tax return is normally due on or near April 15 of the year following the tax year. In 2023, the year in which you file your 2022 tax return, Tax Day is April 18. 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 throughout the tax year.
How To File a Tax Return
You have three options when it comes to filing your taxes: 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.
How Tax Brackets Work
How much tax you must pay begins with your total, or “gross,” income from all sources. You then can claim any deductions to which you’re entitled. These subtract from your gross income to 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. If your income is greater than a certain amount, you will be taxed at a certain percentage. For tax year 2022—what you file taxes for in 2023—the tax brackets are as follows:
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 in taxes or are owed via a refund. Without your W-4, you can calculate your tax bill based on your income. So, for example, let’s say you’re single. If your taxable income for 2022 is $50,000, it falls into the 22% tax bracket range. You would pay 10% tax on income up to $9,950, then 12% on $30,574 ($40,525-$9,951), and then 22% on $9,474 ($50,000 - $40,526).
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 deductions. This doesn’t mean your total tax bill is reduced by that amount, but rather that your taxable income is reduced by this much—which, in turn, may lower 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 to percentages of your adjusted gross income (AGI). 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 2022 tax year, the standard deductions are:
$25,900 for those who are married and file joint returns$12,950 for single taxpayers and those who are married but file separate returns$19,400 for taxpayers who qualify as heads of household
This means you could take the applicable standard deduction when you file your taxes for 2022 in 2023, or you can itemize to try and reduce your taxable income even more. The standard deductions are higher for tax year 2023:
$27,700 for those who are married and file joint returns$13,850 for single taxpayers and those who are married but file separate returns$20,800 for taxpayers who qualify as heads of household
Using Tax Credits To Lower Your Bill
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. For example, you might have owed the IRS $2,500, but after you claimed a $1,500 tax credit, you only owed $1,000. If you owed $2,500 and had tax credits totaling $3,000, then your tax bill would be gone, and the IRS would send you a refund for the $500 balance if the credits were refundable. The IRS would keep that $500 if the credits you claimed were non-refundable, but at least it would entirely erase your tax debt. Each tax credit comes with its own qualifying rules, and how you can claim it varies a little as well. Some tax credits, such as the Child and Dependent Care 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 whether you qualify.
Getting Your Tax Refund, or Paying Your Tax Bill
You’ll be able to determine your tax balance—whether you owe money or are 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. 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. Even if you have no income, it may be wise to file a tax return. And 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 or if the IRS has questions or decides to audit you.
