You’ve probably heard the old saying: “in this world, nothing is certain except death and taxes.” And while that’s true for most people, it can be a scary (and sometimes confusing) task to accomplish each year.
Keep reading to learn everything you need to know when filing your taxes.
What are taxes?
Taxes are a portion of involuntary fees imposed on individuals or corporations that are enforced by a government entity, either local, regional, or national, in order to finance that government.
In the United States, taxes help fund a large array of public works and services, including Social Security, Medicare, social programs like food stamps and disability payments, and our parks and libraries.
All of the fees collected are to help support federal and local government initiatives and to support local communities. A portion also goes to paying off our nation’s debt.
What earnings are taxable?
Taxable money could include income earned from salaries, capital gains from investments, dividends received as additional income, payments made for goods and services, plus more. Here in the U.S., the job of collecting taxes is done by the Internal Revenue Service, or IRS.
There are several common types of taxes you could pay to the IRS including:
- Income Tax – the percentage of an individual’s earnings filed to the federal government
- Corporate Tax – the percentage of a corporations’ profits taken as tax to fund federal programs
- Sales Tax – taxes levied on goods and services
- Property Tax – taxes based on the value of land and other property assets
You’re probably already paying income tax if you get a regular, typical paycheck. This is when your employer withholds the amount of taxes you owe from your earnings and sends it to the appropriate state and federal governments on your behalf.
Employers are required to report wage and salary information for their employees on a W-2 form, and this is a document you’ll need when filing taxes.
It sounds easy enough, but unfortunately the process doesn’t end there. Read on to learn how to file your taxes correctly (and make sure you aren’t paying more than you have to).
How to file federal tax returns in 2021
This year, the IRS announced that it will start accepting and processing the 2020 tax year returns in February, 2021. To file early, you need to have all your documents and forms ready.
Common tax forms & documents you’ll need to file
Common documents and forms you may need include:
- Form 1040 – U.S. Individual Income Tax Return
- Note: 1040-EZ was discontinued after 2017.
- Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
- Form 1040-ES – Estimated Tax for Individuals
- Form W-9 – Request for Taxpayer Identification Number and Certification
- Form 4506-T – Request for Transcript of Tax Return
- Form 941 – Employer’s Quarterly Federal Tax Return
- Form W-2 – Wage and Tax Statement
- Form 9465 – Installment Agreement Request
- Form SS-4 – Application for Employer Identification Number (EIN)
- Form W-7 – Application for IRS Individual Taxpayer Identification Number
The most common tax form used is the 1040, the basic tax form. This form guides you through calculating how much you earned and how to make income adjustments.
Adjustments are either tax deductions or tax credits, and are any expenses you made that the government allows you to exclude from your annual income. Claiming any of these will require more forms (but no surprise there!).
1. Determine if you are required to file
Before you get started, figure out if you have to file a tax return. Chances are most likely yes, but it all depends on your income, filing tax status, age, and a few other factors, such as if someone can claim you as a dependent. Here are three common considerations to help determine if you need to file:
- You had income tax withheld from your paychecks
- You paid estimated tax payments or your refund from the following year was applied to this year’s estimated tax
- You qualify for tax credits
2. Know when taxes are due
In 2021, the deadline to file your tax return is May 17. Traditionally, this day falls on April 15, but the IRS decided to push it back because of the delays related to the coronavirus pandemic.
The only exception to this deadline is if you file for a tax extension. This would give you until October 15 to file your tax return. Do so by filing the correct IRS forms by the Tax Day deadline.
3. Evaluate your tax filing options
There are many different online services that are safe and easy ways of completing your tax return and filing electronically (a.k.a. e-filing). Whichever service you choose, it will guide you through filing out your 1040, or 1099-MISC/1099-NEC if you are a freelance employee.
The IRS strongly encourages e-filing because it’s easier than paper returns, you’ll get your refund quicker, and it’s safer as the forms cannot get lost in the mail.
Free federal tax filing options
The IRS offers free federal tax filing options for those who qualify. You can pick a service with one of their partner sites depending on your income. These partner sites are associated with the IRS Free File Program or use Free Fillable forms that are easy, safe, and best of all, free.
The IRS also offers free help for preparing your tax return though the Volunteer Income Tax Assistance (VITA) program. This is available to those who make less than $56,000, have disabilities, or speak English as a second language.
People above the age of 60 should consider utilizing the Tax Counseling for the Elderly (TCE) program, which specializes in tax situations that involve pensions and retirement-related issues.
IRS Free File
As we’ve mentioned, the IRS offers a Free File Program (yes, FREE!) that helps taxpayers prepare and file their federal income tax online. It’s a public-private partnership between the IRS and many of the tax preparation and filing software programs available right now.
Any taxpayer whose adjusted gross income (AGI) is $72,000 or less qualifies for this program. If your AGI is greater than $72,000, you could qualify for the IRS Free File option, which are electronic federal tax forms you can fill out and file online for free. You should only use this option if you already know how to prepare your tax return.
Be wary of other “free tax filing” offers
There are other online tax-filing services to use besides the IRS. The most popular are:
- H&R Block
- Credit Karma
All of these may charge you a fee for using their services, especially if your tax situation is more complex than average. So this could be a great option if you don’t meet the IRS free-filing criteria, but they aren’t necessarily “free.” Be sure to read the fine print before getting started.
Professional tax preparation services
If you need help or don’t have the time to file on your own, consider working with a tax accountant or other certified tax preparer.
This is also a great idea if your particular tax situation is extra complex, or if your taxes have drastically changed from the year prior. Most times, an online service can do the trick, but they don’t have the experience and guidance of an actual person.
H&R Block and Jackson Hewitt are two common companies that have physical offices, or do a quick google search of local certified public accountants (CPA) in your community.
4. How to file a tax extension
As we mentioned, the only exception to the IRS Tax Day deadline is to file a tax extension. This is a viable option for those who need more time to prepare their federal tax return.
Do so by filling out Form 4868 through the IRS Free File Program, or with your tax professional. Keep in mind that this does not grant you any extension of time to pay your taxes, and you should estimate and pay any owed taxes by your regular deadline to avoid possible penalties and fees.
5. Filing back taxes for prior tax years
Technically, the IRS doesn’t impose a statute of limitations on how long you have to file any past-due tax returns. They won’t decline your return whenever you do it, however, you only have three years to file if you do want a refund for a tax year. The IRS also may take action against you if you don’t file after six years.
To file back taxes, you’ll need at least your W-2 and 1099 forms for any income you earned during the year you’re filing for. You should also include any supporting documentation of expenses that could be tax deductible or would qualify you for tax credits. Then, move forward the same as you would file any other return with an online service.
How to file state tax returns in 2021
In most states, paying a state income tax is unavoidable. Each state has their own tax brackets and rates, so it will vary depending on where you live.
Some cities, like New York City and Portland, OR, may also collect income tax. If you’re using an e-filing service to complete your federal taxes, it will most likely allow you to file your state taxes as well. This may cost extra, and some states may have their own e-filing systems.
Be sure to check with your individual state department of revenue to learn more about filing state tax returns.
Frequently Asked Questions (FAQs)
When are taxes due?
The last day to file taxes in 2021 is May 17.
Historically, the last day to file taxes is April 15.
Am I required to file a tax return?
It’s extremely uncommon to not have to file a tax return. But luckily, the IRS makes it fairly simple to figure that out with their Interactive Tax Assistant Form. You’ll need to know your filing status, amount of federal income tax withheld, and basic information to determine your gross income.
Is unemployment taxed?
Any unemployment compensation you received during the year must be included as part of your gross annual income. That said, it’s a bit more tricky to determine whether or not that unemployment is taxable. Head to the IRS website and use their online tool to help you understand your situation.
How do I file a tax extension?
To file a tax extension, fill out IRS Form 4868 through the Free File service or with a tax software or professional. You should still plan to pay any owed taxes by your regular deadline to avoid fees and penalties.
I already filed my taxes – where’s my tax refund?
Due to COVID-19, it’s taking the IRS longer to process 2020 tax returns. Some reasons for the delay in receiving your tax refund could be:
- Your tax return has errors such as an incorrect Recovery Rebate Credit amount
- Your tax return was incomplete
- You’re being affected by identity theft or fraud
- Needs further review by the IRS in general
You can check the status of your tax refund on the IRS website here. Note it can take 21 days or more since you e-filed and you should not file a second tax return if you still have not received your refund yet.
How long should I keep my filed tax returns and related documents?
Generally, the IRS advises that you keep your records for three years from the date you filed your original return or two years from the date you paid the tax. If you file a claim for a loss of worthless securities or bad debt deduction, keep your records for seven years.