What Is Individual Tax Return?

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Individual Tax Return (wallstreetmojo.com)

Besides using this form to report taxable income, one utilizes this form to claim tax credits and deductions. Moreover, they can compute their tax refund for a financial year. Everyone earning money over a specific threshold must file this return, per legal requirements. Individuals can e-file their return or send the form to the federal tax agency via mail.

Key Takeaways

  • Individual tax return meaning refers to a standard IRS form that an individual or a married couple fills out to declare their taxable income to the government.The federal tax agency can utilize the information in the tax returns to determine if an individual has overpaid or underpaid taxes for that period.One must submit the form within the individual tax return due date to avoid paying additional charges imposed by the IRS.Qualifying widowers or widows and the head of a household are two examples of taxpayers who can file taxes as individuals.

Individual Tax Return Explained

  • Married couples filing jointly or separately.The head of a household.Qualifying widowers or widows.Single filers.

Married couples and single filers must fill out the other required tax forms, for example, any relevant Schedule. For instance, if taxpayers itemize deductions, they must use Schedule A in conjunction with Form 1040. This Schedule would mention tax deductions, like home mortgage interest and charitable contributions.

One must note that every individual taxpayer files their return on a version of Form 1040-SR or 1040. Married people can decide to file their annual returns as an individual or a couple. After filling out the form, they must submit it to the taxing agency within the individual tax return due date to avoid penalties.

Some taxpayers earning business income must include the earnings in their individual income tax returns. Such individuals may include freelancers running a sole proprietorship business and small business owners with limited liability corporations or LLCs treated as pass-through entities.

These taxpayers may need to file Schedule C to report expenses and business income. However, if individuals own a C corporation or some other form of business taxed as a separate entity, they must file a business tax return and an individual tax return. 

One must remember that individual taxpayers must file state tax returns if the state where they reside levies tax on income. The information provided in such a return is similar to the details in a federal tax return. That said, states have different forms, and the rules may also be different.

As a result, different states may require different information from taxpayers. Most state tax returns evaluate and compute taxes based on the line items copied from IRS tax returns.

Checklist

Before taxpayers file individual tax returns, they must go through this checklist. Individuals may highlight the points that apply to them and ensure that the information is available.

#1 – Personal Details

These details tell the IRS who is filing the return and where to deposit tax refund, if any. Such details include

  • Date of birth and social security numbers of the taxpayers, their spouse, and dependents.Routing number and bank account number for the deposit of tax refund.Individuals require a copy of last year’s tax returns.

#2 – Additional Earnings

Individuals must ensure to report all income earned during a period. Typically, the sources of the earnings are as follows:

  • Stock optionsGambling winningsAwards and prizesRental real estate, S corporations, royalties, trusts, etc.Debt cancellationPayments received for jury dutyBusiness incomeScholarships

#3 – Adjustments To Income

Let us look at some items that can help taxpayers reduce their taxable income. This, in turn, can lower the amount of tax payable or increase the tax refund.

  • The records of contributions made to an Individual Retirement Account (IRA) and a Medical Savings Account during the yearAlimony paid by taxpayers for a divorce executed before 2019The canceled receipts or checks paid by teachers for classroom suppliesRecords of all moving expensesForm 1098-E for the interest paid on student loansReceipts for particular energy-efficient home improvements

#4 – Deductions And Credits (If Taxpayers Itemize Their Deductions)

The government provides various deductions and credits to reduce an individual’s tax burden. Let us look at some information required by taxpayers to get such benefits.

  • Records of dental and medical expensesRental property expenses or income: profit/loss statementTheft and casualty losses: insurance reimbursements and the worth of the damagesInvestment interest expensesAdoption costs: SSN of the child; records of transportation, medical, and legal costsCharitable donations: The donated property’s value, official charity receipts, out-of-pocket expenses, cash amounts, etc.

The taxes paid by one may include the following:

  • Local and state income taxesPersonal property taxesReal estate taxesVehicle license fees, depending on the vehicle’s value

#6 – Other Information

Other information includes —

  • Estimated tax payments during a yearForeign bank account details: bank’s name, account number, location, and the highest account value during the yearThe previous year’s tax refund applied to the current year or/and the amount paid with an extension to file.

How To File IRS Individual Tax Return?

Individuals can download the standard IRS form from the federal tax agency’s official website to file individual tax returns. The form may appear confusing to taxpayers. However, it does the following things:

  • Collects Personal Information: Enter all the required details, including the number of dependents, social security number, personal information, tax-filing status, etc.Computes Taxable Income: The form tallies the taxpayer’s annual earnings and the deductions they would like to claim. This step involves the calculation of the taxable income. The government levies tax on this amount. Individuals must check the federal tax brackets to compute their taxable income.Calculates Tax Liability: Next, the taxpayer must enter the tax amount. At this point, they can subtract the tax credits they are eligible for. Moreover, they can subtract the taxes they have already paid during the year through withholding taxes.

Lastly, this form determines whether the taxpayer has paid a portion or the entire tax bill. It helps individuals determine whether withholding taxes and tax credits cover the bill. If they are not enough, the taxpayer pays the remaining amount while filing Form 1040.

Examples

Let us look at a few individual tax return examples to understand the concept better.

Example #1

In November 2022, the federal court sentenced Juan Enrique Kramer and his wife, Adriana Pastor, to 3 years and 18 months in prison, respectively, for defrauding investors and failing to declare their earnings to the IRS correctly. Promoting a turn-key business venture, Kramer took a predetermined fee of $105,000-$250,000 from the buyers and took the responsibility to perform all the services required to set up a restaurant. That said, he failed to provide such services.

In February, Pastor admitted she signed a tax return falsely stating a net income loss. On the other hand, Kramer admitted that he did not file an individual tax return.

Example #2

Suppose a taxpayer named John has earned $50,000 from different sources during a year. He must file an individual tax return to report his income to the IRS. The federal tax agency will check the information provided in the form to determine whether any tax is due or whether the filer will receive a tax refund.

This article has been a guide to what is Individual Tax Return. Here, we explain how to file it, along with its checklist and examples. You may also find some useful articles here –

In Calendar Year 2021, the Internal Revenue Service (IRS) is expected to receive roughly 160.9 million individual tax returns (146.6 electronically filed and 14.4 million filed through paper. As of March 5, 2021, the federal tax agency received roughly 55.7 income tax returns. Out of them, Taxpayers filed 96.8% or 53.9 million of them via the e-filing method.

If the taxpayer is a calendar year filer and their tax year ends on December 31, their individual tax return due date is April 15 every year. One must file a tax return within this deadline to avoid paying any additional fees.

The cost of filing this return with the assistance of an expert, for example, a certified public accountant (CPA), varies from state to state. Besides the location, the accountant’s experience and the complexity of the return significantly influence the cost.

Individuals earning an income worth more than their standard deduction must file a tax return.

  • TaxationWealth TaxCapital Gains Tax