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Filing Your Taxes: A Simple How-To Guide

ByWallstreet Observer

Quick answer

  • Understand your filing status, income sources, and potential deductions/credits.
  • Gather all necessary tax documents (W-2s, 1099s, etc.).
  • Choose a filing method: tax software, professional preparer, or by mail.
  • Accurately report all income and claim eligible deductions and credits.
  • File by the tax deadline or request an extension if needed.
  • Pay any taxes owed or track your refund.

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

Filing Status

Your filing status determines your tax brackets, standard deduction amount, and eligibility for certain credits. The most common statuses are Single, Married Filing Separately, Married Filing Jointly, Head of Household, and Qualifying Widow(er). Choose the status that offers the most tax benefit for your situation.

Income Sources

You must report all income, not just from your primary job. This includes wages, salaries, tips, freelance income, investment earnings, retirement distributions, and any other form of compensation. Missing income can lead to penalties and interest.

Withholding or Estimated Payments

For employees, this relates to the amount of tax taken out of each paycheck (W-4 form). For self-employed individuals or those with significant income not subject to withholding, it involves making quarterly estimated tax payments. Ensure your withholding or payments align with your expected tax liability to avoid a large bill or penalty.

Deductions and Credits

Deductions reduce your taxable income, while credits directly reduce your tax liability. Common deductions include those for student loan interest or self-employment expenses. Popular credits include the Child Tax Credit or education credits. Understanding what you’re eligible for can significantly lower your tax bill.

Deadlines and Extensions

The typical tax filing deadline is April 15th. If this date falls on a weekend or holiday, it shifts to the next business day. If you cannot file by the deadline, you can request an extension, which typically gives you an additional six months to file, but not to pay.

Step-by-step (simple workflow)

1. Gather Your Documents: Collect all W-2s, 1099 forms (for freelance, interest, dividends), K-1s, receipts for deductible expenses, and any other relevant financial statements.

  • What “good” looks like: You have all income statements and documentation for potential deductions and credits readily available.
  • Common mistake: Not collecting all income documents, leading to underreporting. Avoid this by checking your mail and online accounts for all tax forms before you start.

2. Choose Your Filing Method: Decide whether you’ll use tax preparation software, hire a tax professional, or file by mail using paper forms.

  • What “good” looks like: You’ve selected a method that fits your comfort level with tax preparation and the complexity of your return.
  • Common mistake: Picking a method that’s too complex for your needs, leading to errors. If your tax situation is straightforward, software is often sufficient. For complex returns, consider a professional.

3. Determine Your Filing Status: Select the correct filing status (Single, Married Filing Jointly, etc.) based on your personal circumstances.

  • What “good” looks like: You’ve accurately identified the filing status that provides the greatest tax advantage.
  • Common mistake: Choosing an incorrect filing status, which could result in a higher tax bill or missed benefits. Review the IRS guidelines or software prompts carefully.

4. Report All Income: Accurately list all income from all sources, including wages, freelance earnings, interest, dividends, and capital gains.

  • What “good” looks like: Your reported income matches the information on your W-2s and 1099s.
  • Common mistake: Forgetting to report certain types of income, especially from side hustles or investments. Double-check all your financial accounts.

5. Calculate Your Adjusted Gross Income (AGI): Subtract “above-the-line” deductions (like student loan interest or IRA contributions) from your gross income.

  • What “good” looks like: Your AGI is correctly calculated, forming the basis for many other tax calculations.
  • Common mistake: Miscalculating AGI by not including all eligible deductions. Consult IRS Publication 17 or your tax software for a full list.

6. Choose Between Standard or Itemized Deductions: Decide whether to take the standard deduction or itemize your deductions.

  • What “good” looks like: You’ve chosen the deduction method that results in a lower taxable income.
  • Common mistake: Not comparing both options. If your itemized deductions (e.g., mortgage interest, state and local taxes, charitable donations) exceed the standard deduction amount, itemizing is usually better.

7. Identify and Claim Tax Credits: Research and claim any tax credits you’re eligible for, such as education credits, child tax credits, or energy credits.

  • What “good” looks like: You’ve claimed all credits you qualify for, directly reducing your tax bill.
  • Common mistake: Missing out on valuable credits due to lack of awareness. Tax software and professionals can help identify these.

8. Calculate Your Tax Liability: Use the appropriate tax tables or software to calculate the total tax owed based on your taxable income and filing status.

  • What “good” looks like: Your tax liability is accurately computed.
  • Common mistake: Using the wrong tax bracket or table. Ensure you’re using the current year’s rates for your filing status.

9. Subtract Payments and Credits: Deduct any taxes already paid through withholding or estimated payments, and subtract any non-refundable credits.

  • What “good” looks like: You’ve accurately accounted for all payments made and non-refundable credits.
  • Common mistake: Forgetting to subtract withholding from your paycheck. This will make it look like you owe more tax than you do.

10. Determine Your Refund or Amount Due: The final calculation shows if you’re owed a refund or if you need to pay additional tax.

  • What “good” looks like: You have a clear understanding of whether you’ll receive money back or owe money.
  • Common mistake: Making a calculation error that results in an incorrect refund amount or balance due. Review your final figures carefully.

11. File Your Return: Submit your tax return electronically (e-file) or by mail before the deadline.

  • What “good” looks like: Your return is submitted accurately and on time.
  • Common mistake: Filing late without an extension, which can lead to penalties. E-filing is generally faster and provides confirmation.

12. Pay Any Tax Due or Track Your Refund: If you owe taxes, make your payment by the deadline. If you’re due a refund, track its status.

  • What “good” looks like: Your tax payment is made on time, or you know how to access your refund.
  • Common mistake: Not paying by the deadline if you owe, incurring interest and penalties. Many payment options are available, including online.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes | Fix

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