How to File Your Taxes & What to Know Beforehand

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Woman completing her taxes

When it comes to taxes, everyone has questions. In fact, filing taxes may be the single most complicated financial tradition that you undertake. But it’s also an important part of your yearly financial to-dos and a great way to evaluate your income, expenses, and other financial matters. Follow these steps to simplify and streamline your tax filing process.

Determine Your Need to File

Not everyone has to file taxes, but most people do. If your income falls below a threshold amount determined by your age and filing status, you may be exempt from filing a tax return. Check the IRS tax filing requirement for the current tax year and pay attention to your income throughout the year to determine whether you’ll need to file.

For tax filing purposes, your combined gross income is what matters, not your take-home pay. This will include pre-tax earnings from your employer, as well as other income from investments, accounts, and other jobs you may have.

You can see the full table of filing thresholds by filing status at IRS.gov.

Gather Tax Documents and Information

When it comes to filing taxes, collecting forms and remembering where you placed all your tax paperwork is half the battle. You should start receiving tax forms from your bank, employer, and other income sources as early as January. You might also receive receipts for charitable donations, statements for tuition and student loans, and other tax-related documents throughout the year. Two of the most common tax forms include W-2 and 1099 forms:

  • W-2 Form: IRS Form W-2 is a wage and tax statement issued by your employer that states the income you earned and the taxes withheld during the year. Your employer should give this to you or send it by mail.
  • 1099 Form: IRS Form 1099 comes in a few different variations (1099-NEC, 1099-DIV, 1099-INT), but they all detail income earned throughout the tax year.

Keep all of your tax-related forms and documents in a single place, so you’re not stuck searching for missing information during tax time. In addition to the tax forms that will be sent to you, gather the following information so you have it handy when it comes time to file taxes:

  • Government ID: You’ll need to identify yourself (and any dependents you may have) by your government-issued social security numbers and possibly your driver’s license numbers or other government-issued identification. You must have a social security number or Individual Taxpayer Identification Number (ITIN) to file a tax return.
  • Donations and Contributions: You may be able to deduct donations you made to charitable organizations throughout the year, including churches, non-profits, and other qualifying organizations. If you have a retirement account, you should receive an IRS Form 5498, which reports contributions to your individual retirement accounts.
  • Interest and Taxes Paid: You may be able to deduct property taxes and mortgage insurance paid throughout the year. Also, if you paid state taxes for the previous tax year, you may be able to deduct your expenses, but there is a limit.
  • Miscellaneous Expenses: Some educational expenses may be tax deductible. IRS Form 1098-T shows you how much you paid toward tuition, grants, and/or fellowships. IRS Form 1098-E details interest paid on student loans. You may also be able to deduct qualified, unreimbursed medical expenses, as long as they rise above a certain income-to-expense threshold for the current tax year. If you spent money filing last year’s taxes and paid for it in the current tax year, you may be able to deduct the expenses.

Choose How to File Taxes

There are several ways to file your taxes, each with a different level of personal involvement. The best way to file is completely up to you. You can fill out all the required forms by hand and send them to the IRS yourself. You can file taxes online using a tax software program or the IRS Free File program. Or, you can always work with a tax professional, if you need help.

File Taxes Online

Filing your taxes online falls somewhere between complete DIY tax filing and hiring a tax professional to do all the work. Most online tax filing programs walk you through a simple step-by-step process for inputting information and determining your potential tax responsibility. You may have to pay a fee for using an online tax preparation service, but the streamlined filing online tax guidance may be worth the money, depending on your financial situation. Of course, you can always file for free through the IRS at any time.

Hire & Work With A CPA

There’s no shame in asking for tax help. If you bought a home, own your own business or rental properties, got divorced, or have several financial accounts, filing taxes can get overwhelming. It’s not unreasonable to decide to hire a professional.

A certified public accountant (CPA) is a tax professional who is qualified to provide accounting services to the public. A CPA can help you know whether you have to pay taxes, determine your tax credits and deductions, and file your tax return with the IRS. Many of the popular online tax preparation services also include access to CPAs, if needed.

Know Your Tax Responsibility

The United States has a progressive tax system. That means each individual’s tax responsibility increases with income. If you make more money, you may be subject to a higher federal income tax rate. For the tax year 2022, there were seven different tax brackets. The tax rate you pay is determined by your gross income and filing status. These tend to change each year, so make sure you review your responsibility each year.

Pay Your Taxes or Collect Your Refund

When you’ve completed your tax filing, you may owe money to the IRS or the IRS may owe money to you. Either way, it’s time to pay or get paid.

If You Owe

If you owe the IRS, there are several ways to pay your taxes. If you used a tax software to file, you may be able to submit a payment online and be done with it. If you got help with your taxes, your tax professional will instruct you on the best ways to pay. If you filed your taxes by yourself, you can include a payment with your filing—a check, credit or debit card payment.

If You’re Getting a Refund

The best part about tax time is getting your tax refund. To help you get your funds as fast as possible, avoid paper filings, which can take up to eight weeks to process. Filing online can speed up the filing and refund process significantly.

Depending on how you choose to file, you may have the option to ask the IRS to issue your refund via direct deposit to your bank account, instead of sending a check by mail. If you’re anxious to get your refund (who isn’t?) you can always track the status of your refund online through the IRS website.

Summary: How to File Taxes & What to Know Beforehand

Filing your taxes might not be the most fun you’ll have all year, but knowing what goes into your taxes can help you to find the best way to file for yourself. You can also better understand the reasons for paying taxes, the forms you’ll need to collect, and the best ways to pay taxes and/or receive your refund. Follow this guide for filing your taxes (and refer to it often as a helpful resource) and you’ll be on your way to checking off one of your most important yearly financial to-dos.