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A Simple Guide to Doing Your Taxes

ByWallstreet Observer

Quick answer

  • Understand your filing status and gather all income documents.
  • Review your withholding or estimated tax payments throughout the year.
  • Identify potential deductions and credits to reduce your tax liability.
  • Choose a filing method: tax software, professional preparer, or by hand.
  • File by the annual deadline, typically April 15th, or request an extension.
  • Keep accurate records of all tax-related documents.

What to check first (before you file or change withholding)

Before you begin the process of filing your taxes or adjusting how much is withheld from your paycheck, it’s crucial to have a clear picture of your financial situation. This foundational understanding can save you time, prevent errors, and potentially lead to a more favorable tax outcome.

Filing Status

Your filing status determines the tax brackets and standard deduction amount you’ll use. The most common statuses for individuals are Single, Married Filing Separately, Married Filing Jointly, Head of Household, and Qualifying Widow(er). Choosing the correct status is vital, as it can significantly impact your tax bill. For example, married couples can often benefit from filing jointly, but there are situations where filing separately might be advantageous.

Income Sources

You need to account for all income you received during the tax year. This includes wages from employment (reported on W-2 forms), income from self-employment or freelance work (reported on 1099 forms), interest and dividends from investments, rental income, and any other taxable earnings. Missing income can lead to penalties and interest.

Withholding or Estimated Payments

For W-2 employees, your employer withholds income tax from each paycheck based on the information you provide on Form W-4. For those with income from sources like self-employment or investments, you may need to make estimated tax payments throughout the year. Reviewing your W-4 annually, especially after major life changes, is a good practice. If you’re consistently getting a large refund or owing a significant amount, your withholding or estimated payments may need adjustment.

Deductions and Credits

Deductions reduce your taxable income, while credits directly reduce the amount of tax you owe. Common deductions include those for student loan interest, IRA contributions, and certain self-employment expenses. Credits can be for education, child and dependent care, or energy-efficient home improvements, among others. Understanding which ones you qualify for is key to minimizing your tax liability.

Deadlines and Extensions

The primary tax deadline in the U.S. is typically April 15th. If this date falls on a weekend or holiday, the deadline shifts to the next business day. If you cannot file by the deadline, you can request an extension, usually until October 15th. However, an extension to file is NOT an extension to pay. You should still estimate and pay any taxes owed by the original deadline to avoid penalties and interest.

Step-by-step (simple workflow)

This workflow outlines the general process for filing your federal income taxes. Remember to consult official IRS resources or a tax professional for personalized guidance.

1. Gather Your Documents:

  • What to do: Collect all necessary tax forms, including W-2s, 1099s, receipts for deductible expenses, and any other relevant financial statements.
  • What “good” looks like: You have all your income statements and documentation for potential deductions and credits readily available.
  • Common mistake: Forgetting to collect all income documents, especially from side hustles or freelance work. Avoid it by creating a checklist at the beginning of the year for all income sources and keeping a dedicated folder for tax documents.

2. Determine Your Filing Status:

  • What to do: Decide which filing status (Single, Married Filing Jointly, etc.) best applies to your situation for the tax year.
  • What “good” looks like: You’ve confidently selected the filing status that offers the most tax benefit or is legally correct for your circumstances.
  • Common mistake: Choosing an incorrect filing status, which can lead to owing more tax or missing out on benefits. Avoid it by reviewing the IRS definitions for each status and consulting a tax professional if unsure.

3. Calculate Your Income:

  • What to do: Add up all sources of taxable income reported on your W-2s, 1099s, and other income statements.
  • What “good” looks like: Your total gross income accurately reflects all earnings for the tax year.
  • Common mistake: Omitting certain income, such as freelance earnings or interest from savings accounts. Avoid it by carefully reviewing every document received and cross-referencing with your bank and investment statements.

4. Choose Your Filing Method:

  • What to do: Decide whether to use tax software, hire a tax professional, or complete your taxes manually.
  • What “good” looks like: You’ve selected a method that fits your comfort level with numbers, the complexity of your tax situation, and your budget.
  • Common mistake: Using a method that’s too complex for your situation, leading to errors. Avoid it by starting with simpler tax software if your finances are straightforward, or seeking professional help for more intricate returns.

5. Calculate Deductions:

  • What to do: Determine if you will itemize deductions or take the standard deduction. If itemizing, gather documentation for eligible expenses.
  • What “good” looks like: You’ve chosen the method that provides the largest reduction to your taxable income.
  • Common mistake: Not tracking deductible expenses throughout the year, making it hard to itemize. Avoid it by keeping a running log of potential deductions like medical expenses, charitable donations, or business expenses.

6. Identify Credits:

  • What to do: Review your eligibility for various tax credits, such as the Child Tax Credit, education credits, or energy credits.
  • What “good” looks like: You’ve claimed all tax credits you are entitled to, directly reducing your tax liability.
  • Common mistake: Overlooking credits you qualify for, such as the Earned Income Tax Credit for lower-income individuals. Avoid it by using tax software that prompts for credit eligibility or consulting IRS publications.

7. Complete Tax Forms:

  • What to do: Fill out the appropriate federal tax forms (e.g., Form 1040) and any necessary schedules.
  • What “good” looks like: All forms are accurately and completely filled out, with calculations double-checked.
  • Common mistake: Simple data entry errors or miscalculations. Avoid it by using tax software that performs calculations automatically or having a second person review your completed forms.

8. Review and Verify:

  • What to do: Before submitting, thoroughly review your entire tax return for accuracy, ensuring all numbers add up and all relevant sections are completed.
  • What “good” looks like: You are confident that your tax return is accurate and complete.
  • Common mistake: Rushing the review process and missing errors. Avoid it by setting aside dedicated time for review and comparing key figures against your supporting documents.

9. File Your Return:

  • What to do: Submit your tax return electronically (e-file) or by mail by the deadline.
  • What “good” looks like: Your return is successfully filed and you have confirmation of submission.
  • Common mistake: Filing late without an extension. Avoid it by noting the tax deadline early and planning to file a week or two before it.

10. Pay or Receive Refund:

  • What to do: If you owe taxes, make a payment. If you are due a refund, you will receive it via direct deposit or check.
  • What “good” looks like: Any tax due is paid on time, or your refund is received promptly.
  • Common mistake: Not paying taxes owed by the deadline, incurring penalties. Avoid it by setting up payment reminders or scheduling payments in advance.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes | Fix

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