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Filing Your Federal Income Tax Return – Textbook Personal Finance

This post is part of the textbook personal finance series which covers basic personal finance skills by going through an actual textbook, chapter-by-chapter. Check out the intro post for more information.

Last week we talked about the basics of federal income taxes, how they’re calculated and paid. This week we’re going to be talking about that lovely activity we all do by April 15th—filing.

Once again, let me state that I’m working through a textbook and offering information about taxes but not professional tax advice or information.

Who Must File?

Every citizen or resident of the United States (including Puerto Rico) is required to file a federal income tax return if his or her income is above a certain amount. The amount is based on your filing status and age.

There are five filing status categories:

  1. Single — either never-married, divorced, or legally separated with no dependents. You must file for 2009 if your income was over $9,350 (or $10,750 if you’re 65+ in 2009).
  2. Married, filing jointly — combines spouses’ incomes. You must file for 2009 if your combined income was over $18,700 (or $19,800, for one spouse or $20,900 for both spouses, if you’re 65+ in 2009)
  3. Married, filing separately — Each spouse files his or her own return (not the same as single). You must file for 2009 if your income was over $3,650 (no matter how old you are).
  4. Head of Household — unmarried or surviving spouse who maintains a household with dependents (for whom they provide at least half of their support). You must file for 2009 if your income was over $12,000 (or $13,000 if you’re 65+ in 2009).
  5. Qualifying widow/er with dependent child — an individual whose spouse has died within the past two years and who has a dependent. You must file for 2009 if your income was over $15,050 (or $16,150 if you’re 65+).

If you made less and had taxes withheld, then you’ll probably still want to file in order to get the money back!

Note: Self-employed/freelancers must file if they earn at least $400, a much lower number.

Which Tax Form Should You Use?

There are three basic forms used to file income tax. Form 1040 is the standard long form which has sections for all types of income. If your income is low enough and you have a simpler return, you may be able to file 1040A. 1040EZ is the simplest form but does not allow you to make the same adjustments to income or claim the same tax credits as the 1040A or the 1040.

I’m going to cut down on what the book says here because I don’t want to be responsible for someone using the wrong form. If you’re filing a simple return, you may qualify to file for free with one of these programs. In that case, you don’t have to choose a form, the program walks you through and files whichever one fits your needs.

The 1040X form is used to file an amended retun. You can use it if you’ve discovered another source of income or, better, if you’ve discovered some useful new deductions.

What is the Process for Completing a Federal Tax Return?

This list takes you through the sections of a 1040, based on a list in the book. It was written several years ago, but I verified it with the 2009 Form 1040 and it still applies. Terms on the list are explained more fully in this post. If you’re a freelancer or sole proprietor, your taxes will be more complicated, as you’ll have to use Schedule C too.

  1. Filing status and exemptions. Select your filing status and list the number of exemptions you’re claiming: yourself, your spouse (if applicable), and anyone you’re claiming as a dependent. You’ll need to list the social security numbers of your dependents (as well as yours and your spouse’s at the top of the return).
  2. Income. Earnings from your W-2, as well as 1099s from interest or investments.
  3. Adjustments to income. Adjustments you’ll use to compute your AGI.
  4. Tax computation. In this section, you take your AGI and deduct the standard or itemized deductions and exemptions. The number you compute here is the basis for determining your tax. You then find out your tax owed by checking the appropriate tables.
  5. Tax credits. In this section, subtract any tax credits for which you qualify from your taxes owed.
  6. Other taxes. Any special taxes, such as the self-employment tax (joy!), are calculated at this point.
  7. Payments. Your total withholding or other payments made.
  8. Refund or amount you owe. If your payments exceed the amount of income tax you owe, fill out the refund. If you did not pay (withhold or make estimated payments) as much as you owe, you’ll need to make an additional payment. You can fill in your banking info here to have it directly deposited into your account.
  9. Your signature. Would you believe that forgetting to sign is one of the most common tax errors? When filing electronically, you sign with a special PIN.

Stay tuned for next week’s topic: What if I get audited?


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