Tax Preparation for Beginners

Mention the word taxes and many people start sweating . . . The maze of tax forms you must wade through can seem overwhelming, and following the rules can seem impossible. But take heart: The Internal Revenue Service (IRS) has worked hard (hic) in recent years to try to simplify the process for most taxpayers. Filing incorrectly may bring heavy penalties, so it’s important to take advantage of all the help you can get.

You may want to hire a Professional Tax Preparer if you can afford it. Click here to view our tutorial on making that decision. Using a professional can result in thousands of dollars in tax savings and the reassurance that your return should be filed correctly.

Generally, the IRS requires that you file a tax return by April 15 of each year unless you request an extension in writing. Save and categorize all of your deductions throughout the year so you will be organized and ready to file when the time comes. This tutorial will help you decide what tax forms to use and how to fill them out.

  1. Do a Head Count (START HERE)
  2. Choose Your Tax Forms
  3. Gather Income Statements
  4. Prepare Your Tax Return
  5. Avoid Errors
  6. Send Your Tax Return
  7. Tax Return Tips
  8. Tax Help Is Available

Do a Head Count

The IRS requires that you identify yourself in one of five ways: single, married filing jointly, married filing separately, head of household or qualifying widow(er) with dependent child.

Single is defined as unmarried, legally separated under a decree of divorce or separate maintenance contract and (after a period of time) widowed.

Married Filing Jointly means you and your spouse report your incomes on one tax return. You are both required to sign the return.

Married Filing Separately is occasionally used by married couples to reduce the total amount of tax liability. Generally, you and your spouse file separate returns and are each responsible for your own taxes.

Head of Household is a special status that is taxed at a lower rate. To qualify, generally you must be single (although some married persons who live apart may qualify) and be responsible for more than half the upkeep of a home where a qualifying dependent resides.

Qualifying Widow(er) with Dependent Child is a special classification. Generally, if your spouse died in either of the preceding two tax years (and not the tax year of the return), and you have a dependent child and meet certain other requirements, you may qualify.

Choose Your Tax Forms

Everyone must file the basic tax form 1040 (or 1040EZ or 1040A). You must include additional forms depending on the type and amount of income earned and deductions taken. Read the list below for a general overview of the forms you may need.

You may be able to use this form if you are Single or Married Filing Jointly, you have no dependents, you and your spouse are under 65 and not blind, your taxable income (which can only be from certain sources) is less than $50,000, your earned interest is less than $400 and you do not itemize deductions.

You may be able to use this form if your taxable income is less than $50,000 and you do not itemize deductions.

Everyone can use this form to report all types of income. You must use this form if your taxable income is greater than $50,000. The 1040 is also the form used when you itemize your deductions instead of taking the standard deduction (which is generally the amount the government allows each person to claim instead of itemizing deductions). The amount of the standard deduction changes annually and is listed in the tax form booklets.

The following is a list of the schedules most commonly used with the 1040:

Schedule A (itemize deductions)

Schedule B (report taxable interest or dividends in excess of $400)

Schedule C or C-EZ (report profit or loss from a business)

Schedule D (report capital gains and losses)

Schedule E (report supplemental income and losses)

Schedule EIC (claim earned income tax credit)

Choose Your Tax Forms

W-2 forms are wage and tax statements you receive from your employer. You should receive a W-2 from every employer at the beginning of each year for income earned the previous year. If you do not receive a W-2 form by February 1, contact your employer. It is your responsibility to report all your earnings.

Banks, mutual funds and other investment firms provide 1099 forms that show dividends and interest earned over the course of the previous year. You might also receive a 1099 if you did work as an independent contractor. Interest and other income must be added to your total earnings. Again, you are responsible for reporting the earnings listed on all 1099.

Prepare Your Return

Use the following checklist as you gather information and prepare your taxes:

  • Collect all records, including W-2s, 1099s, receipts, etc.
  • Obtain forms and schedules from the public library or IRS.
  • Fill in your return following the directions in the appropriate booklet.
  • Check your return for accuracy.
  • Sign and date your return.
  • Attach all required forms.
  • Include the payment voucher (Form 1040-V) with any required payment.

Avoiding Common Errors

People are human and make mistakes-the IRS knows this. But if you’re aware of the most common mistakes, you may be less likely to make them.

Watch out for:

  • An incorrect Social Security number
  • Incorrect math
  • No signature or, if you’re filing jointly, only one signature
  • Failure to include W-2s

Other areas prone to error are deductions for travel and entertainment, deductions for a home office and capital gains and losses. If you do make a mistake-minor or otherwise-you should amend your return by filing a 1040X.

Sending Your Return

Your return should be sent to the appropriate IRS processing center. Use the envelope provided by the IRS in the instructional booklet or find the appropriate address in the instructional booklets for the 1040EZ, 1040A or 1040 forms. Appropriate IRS centers are listed next to each state.

Tax Return Tips

Following these suggestions should help your return receive prompt and accurate attention:

  • Your return should be neat.
  • Round money amounts to the nearest dollar. It makes calculations easier and reduces the chances for errors.
  • Use last year’s forms as a guide so you don’t forget sources of income or deductions. Watch out, though, for changes in exemption and standard deduction amounts.
  • Always file on time even if you don’t have the money to pay. At the very least, file for an extension using Form 4868. Even if you file for an extension, you must estimate the taxes due and pay that amount by April 15.
  • Include a check if you owe money. Put your Social Security number on the check, and use Form 1040-V to help the IRS improve processing efficiency.
  • Keep a copy of your tax return and other documents for your records.
  • Get help if you have questions. See a tax attorney, CPA or IRS representative, or visit a commercial tax preparation office.
  • Get organized for next year. Set up folders for your records and receipts.
  • Keep your records three years after the filing deadline.

Help Is Available

Believe it or not, the IRS is your best source of information. They have many publications such as Your Federal Income Tax and Tax Guide for Small Business. You can obtain a list of publications produced by the IRS by calling 1-800-829-3676. Or check your local public library, which probably has a reference set of IRS publications, updated annually for the tax filing season. The IRS also has a recorded information service- Tele-Tax at 1-800-829-4477 -with messages on over 140 tax topics, and offers a live assistance line at 1-800-829-1040 to answer your federal tax questions. On a local level, there are programs, such as Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE), designed to assist older, disabled, low-income or non-English speaking persons complete the basic forms. If you are required to file a state or local income tax return, again you can check your library for extra forms and assistance guides.

Check also the Government and Municipal Guide, or “blue pages,” in your phone book for state and local taxpayer offices and assistance numbers. Filing and paying taxes is part of life, but it doesn’t have to be an unpleasant experience. The more organized you are and the more you learn about how to file your taxes, the easier it will become. Many happy returns!