Federal Tax Return

A federal tax return refers to a form that taxpayers in the United States send to the Internal Revenue Service or IRS every year. One must file tax returns to compute their tax liability, request refunds in the case of overpayment of taxes, and schedule tax payments.

Organizations and individuals having any kind of reportable income, for example, interest, capital gains, dividends, or any other kind of profit, must file a tax return. The return filed by them shows their income for the year and what amount they owe to the federal government in the form of taxes based on the income.

Federal tax return meaning refers to a form that US taxpayers fill out and submit to report their income, deductible expenses, and other relevant tax-related information. It computes the net income tax payable for an individual or organization for a given financial year. 

Taxpayers must file this form annually within the federal tax return filing deadline, which is April 15 every year. The IRS prescribes the forms one must utilize to file the tax returns. In the United States, individual taxpayers utilize variations of the IRS’s Form 1040 for filing tax returns. The federal tax return form requires persons to enter their personal information first, which includes information concerning dependents and their filing status.  

Based on individuals’ income, how they wish to claim deductions and the credits they want to claim, they might have to fill out extra forms, call schedule and submit along with Form 1040. 

Note that corporations and partnerships fill out Form 1120 and Form 1065, respectively, to file their tax returns. Moreover, for income generated from sources unrelated to employment, one must use variations of 1099 forms.

Let us look at the sections in a federal tax return form. 

#1 - Income

This section includes the different sources of income, for example, salaries, wages, tips, royalties, self-employment income, and capital gains. Note that this section also includes unemployment income. It refers to the payments that the US government makes to the taxpayer when the latter is unemployed and meets specific eligibility criteria. 

#2 - Deductions

This section in a tax return includes certain expenses that taxpayers can deduct from their overall income to reduce their taxable income. A few examples of deductible expenses are as follows: 

• Interest paid by the taxpayer on the mortgage 
• Charitable donations 
• Self-employment expenses 
• Interest paid by the taxpayer on student loans 

Some other examples include contributions made to any retirement savings plan and alimony paid by the taxpayer. 

Note that taxpayers can decide to itemize deductions. Alternatively, they can utilize standard deductions. 

#3 - Tax Credits

 These are the amounts that offset the taxes or tax liabilities owed by the taxpayer. There are various kinds of tax credits. For example, these credits are available for supporting eligible children that the taxpayer is supporting. This is called child tax credit. Note that the child must be less than 17 years old and a dependent for the taxpayer to claim the tax credit. 

In the case of certain tax credits, if the amount of credit is more than the sum owed by the taxpayer, they are eligible for a refund from the federal government. 

#4 - Payments

A tax return’s final section tallies every tax payment made by the taxpayer and any credit claimed by them. This section determines if the taxpayer owes money to the government or will receive a refund. Note that overpaid taxes may also get rolled into the succeeding tax year. 

Let us look at some noteworthy deductions and tax credits for tax year 2024.

• 401(k) and IRA Deductions: Contributions made to traditional Individual Retirement Accounts or IRAs and 401(k)s can be deductible entirely or partially up to the yearly limit set by the IRS. The maximum amount of deduction will depend on the taxpayer’s income and some other factors.
• Deduction Against Student Loan Interest: Taxpayers can claim a maximum deduction of $2,500 on the interest paid on any private or federal student loan.
• Earned Income Tax Credit or EITC: Moderate or low earners can be eligible for EITC. The tax credit amount receivable by them can be higher if they have qualifying dependents.
• Child Tax Credit: Taxpayers who served as caregivers for dependent children under the age of 17 can get a maximum amount of $2,000. Whether or not they will receive the full credit will depend on their income.
• Savers Tax Credit or STC: If individuals made contributions to any qualifying retirement account, for example, 401(k) or IRA, they may become eligible for getting non-refundable credit in addition to relevant deductions. Based on the taxpayer’s filing status and adjusted gross income, they get a maximum of $1,000.

Individuals can follow the steps below to file their federal tax return form.

1. Accumulate Receipts and Documents: First, taxpayers must collect their W-2 forms, receipts for all deductible expenses, and 1099s prior to filing the tax return. Having all these documents will ensure that they can claim the deductions and report income accurately.
2. Choose the Filing Status: The tax filing status depends on whether the taxpayer is married or unmarried and filing separately or jointly.
3. Choose the Mode of Filing Taxes: Taxpayers can either file their tax return online or they can mail the form via the US Post Office. Most taxpayers find the former mode more convenient. Also, in this step, enter all required personal information.
4. Itemize Deductions/Take Standard Deduction: Taxpayers must decide whether to itemize deductions or opt for the standard deduction. 
5. Figure Out The Tax Liability: Next, find out whether tax has to be paid or the government will issue a refund. One can refer to the payment section in the form to get a clear idea.
6.  Submit The Return: Lastly, ensure to submit the form within the tax return filing deadline. 

One can understand the importance of tax returns by going through the following points: 

• Individuals earning above a certain level of income and organizations earning any sort of income have a legal obligation to file a tax return annually.
• Taxpayers need to file tax returns to claim refunds. 
• If one’s income is ineligible for taxation, they can file a return to claim a refund for the overpayment of taxes.