How To Do Your Federal Taxes

Quick answer

• Gather all necessary tax documents like W-2s, 1099s, and receipts for deductions.
• Choose the correct filing status (Single, Married Filing Jointly, etc.).
• Decide whether to itemize deductions or take the standard deduction.
• Calculate your tax liability based on your income and applicable credits.
• File your return accurately and on time to avoid penalties.
• Consider consulting a tax professional if your situation is complex.

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). Ensure you select the one that accurately reflects your marital and family situation as of December 31st of the tax year.

Income Sources

You must report all income received during the tax year, regardless of the source. This includes wages from employment (W-2s), income from freelance work or self-employment (1099-NEC, 1099-MISC), interest from savings accounts or investments (1099-INT, 1099-DIV), retirement distributions (1099-R), and any other taxable earnings. Missing income can lead to penalties and interest.

Withholding or Estimated Payments

If you are an employee, your employer withholds federal income tax from your paychecks based on the W-4 form you provided. If you have income from sources where tax isn’t withheld (like self-employment or investments), you may need to make estimated tax payments throughout the year to avoid penalties. Review your withholding annually or when life events occur.

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 self-employment expenses. Credits can be for education, child care, energy efficiency, and more. Determine if you qualify for any and gather the necessary documentation to claim them.

Deadlines and Extensions

The primary deadline for filing federal income taxes is typically April 15th. If this date falls on a weekend or holiday, the deadline shifts to the next business day. You can request an extension to file, but this is an extension to file, not an extension to pay. You will still need to estimate and pay any tax owed by the original deadline to avoid penalties.

Step-by-step (how to do your federal taxes)

1. Gather Your Documents: Collect all W-2s, 1099 forms (for interest, dividends, freelance income, etc.), Social Security statements, and records of any other income. Also, gather documentation for any deductions or credits you plan to claim, such as receipts for medical expenses, charitable donations, or education costs.

• What “good” looks like: You have every document needed to accurately report your income and claim eligible deductions and credits.
• Common mistake: Forgetting to collect all income forms, especially from side hustles or investment accounts.
• How to avoid it: Create a checklist at the beginning of the year and ask for missing documents from payers.

2. Choose Your Filing Status: Determine which filing status applies to you: Single, Married Filing Separately, Married Filing Jointly, Head of Household, or Qualifying Widow(er). Your choice impacts your standard deduction, tax rates, and eligibility for certain tax benefits.

• What “good” looks like: You have confidently selected the filing status that legally applies to your situation.
• Common mistake: Choosing a status that isn’t permitted or is less advantageous without understanding why.
• How to avoid it: Review the IRS definitions for each status to ensure you meet the requirements.

3. Determine if Itemizing is Beneficial: Compare the total of your potential itemized deductions (medical expenses, state and local taxes, mortgage interest, charitable contributions) with the standard deduction amount for your filing status.

• What “good” looks like: You’ve calculated your itemized deductions and compared them to the standard deduction, choosing the method that results in a lower taxable income.
• Common mistake: Automatically taking the standard deduction without calculating potential itemized deductions, potentially overpaying tax.
• How to avoid it: Always calculate your potential itemized deductions and compare them to the standard deduction.

4. Calculate Your Adjusted Gross Income (AGI): Sum all your taxable income sources and then subtract certain “above-the-line” deductions (like IRA contributions, student loan interest, or self-employment tax deductions). This results in your AGI.

• What “good” looks like: Your AGI is accurately calculated, reflecting all income and eligible deductions.
• Common mistake: Including non-taxable income or forgetting to subtract eligible above-the-line deductions.
• How to avoid it: Use tax software or consult IRS instructions for a clear definition of what constitutes AGI.

5. Calculate Your Taxable Income: Subtract either the standard deduction or your total itemized deductions from your AGI. This figure is your taxable income.

• What “good” looks like: Your taxable income is correctly calculated after subtracting the appropriate deduction amount.
• Common mistake: Subtracting the wrong deduction amount or failing to subtract any deduction at all.
• How to avoid it: Ensure you use the correct standard deduction amount for your filing status or accurately sum your itemized deductions.

6. Calculate Your Tax Liability: Use the IRS tax tables or tax rate schedules to find the amount of tax owed on your taxable income.

• What “good” looks like: You’ve accurately applied the correct tax rates to your taxable income.
• Common mistake: Using outdated tax tables or misapplying the tax brackets.
• How to avoid it: Always use the official IRS tax tables or tax computation worksheets for the relevant tax year.

7. Apply Tax Credits: Subtract any eligible tax credits from your calculated tax liability. Credits directly reduce your tax bill, dollar for dollar.

• What “good” looks like: You’ve identified and applied all tax credits for which you qualify, further reducing your tax owed.
• Common mistake: Overlooking available tax credits that could significantly lower your tax burden.
• How to avoid it: Research common tax credits or use tax preparation software that prompts you about eligibility.

8. Determine Your Refund or Amount Due: Compare your total tax liability (after credits) with the amount of tax already withheld from your paychecks or paid through estimated taxes. If more was withheld than you owe, you’ll receive a refund. If less was withheld, you’ll owe additional tax.

• What “good” looks like: You have a clear understanding of whether you are due a refund or owe money to the IRS.
• Common mistake: Miscalculating withholding or estimated payments, leading to an unexpected refund or balance due.
• How to avoid it: Regularly review your pay stubs and estimated tax payments throughout the year.

9. Complete and Sign Your Tax Return: Fill out all required sections of your chosen tax form (e.g., Form 1040). Sign and date the return.

• What “good” looks like: Your tax return is complete, accurate, and signed.
• Common mistake: Forgetting to sign the return or leaving sections blank.
• How to avoid it: Double-check the form for any missing information and sign in the designated areas.

10. File Your Return: Submit your tax return to the IRS electronically (e-file) or by mail. E-filing is generally faster and more accurate.

• What “good” looks like: Your tax return has been successfully submitted to the IRS before the deadline.
• Common mistake: Missing the filing deadline.
• How to avoid it: File early or, if necessary, file for an extension well before the deadline.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Incorrect filing status	Incorrect tax rates, standard deduction, or eligibility for credits.	Amend your return (Form 1040-X) to correct your filing status.
Missing income (W-2s, 1099s, etc.)	Understated tax liability, leading to penalties and interest.	File an amended return (Form 1040-X) reporting the missing income and paying any additional tax owed.
Forgetting to claim deductions/credits	Higher taxable income and tax liability than necessary.	File an amended return (Form 1040-X) to claim the missed deductions or credits.
Math errors	Incorrect tax owed or refund amount.	If caught before filing, correct the error. If caught after, file an amended return (Form 1040-X).
Incorrect Social Security Number (SSN)	Delays in processing, denial of credits/deductions, potential penalties.	File an amended return (Form 1040-X) with the correct SSN.
Not signing the return	The IRS considers the return incomplete and it won’t be processed.	Sign and date the return. If already filed, you may need to send a signed copy or amend.
Missing the filing deadline without extension	Failure-to-file penalty and potential failure-to-pay penalty, plus interest.	File as soon as possible and pay any tax owed. If you filed an extension, pay by the original deadline.
Not paying tax owed by the deadline	Failure-to-pay penalty and interest on the unpaid amount.	Pay the balance due immediately. Contact the IRS if you cannot pay in full to discuss payment options.
Incorrect bank account for direct deposit	Refund will be delayed or sent via paper check.	Contact your bank immediately. If the IRS has already processed it, you may need to file an amended return or trace the payment.
Claiming dependents who don’t qualify	Incorrect credits (like Child Tax Credit) and potential penalties.	File an amended return (Form 1040-X) to remove the ineligible dependent and adjust credits.

Decision rules (simple if/then)

• If your total itemized deductions are greater than the standard deduction for your filing status, then you should itemize deductions because it will lower your taxable income more.
• If you received income from self-employment or freelance work, then you likely need to make estimated tax payments quarterly because taxes aren’t automatically withheld.
• If you have dependents, then check if you qualify for the Child Tax Credit or other dependent-related credits because they can significantly reduce your tax liability.
• If you made significant contributions to a retirement account (like a traditional IRA or 401(k)), then you may be able to deduct those contributions, reducing your AGI.
• If you had medical expenses that exceeded a certain percentage of your AGI, then you may be able to itemize those expenses as a deduction.
• If you are married, then compare filing jointly versus separately to see which status results in a lower combined tax liability because community property laws and income levels can influence this.
• If you received unemployment benefits, then remember that these are taxable income and you should report them.
• If you are a student, then check if you qualify for education credits (like the American Opportunity Tax Credit or Lifetime Learning Credit) or deductions for tuition and fees.
• If you are self-employed and have business expenses, then track them carefully as they can be deducted, reducing your taxable business income.
• If you have investments that generated capital gains or losses, then report these accurately, as they are taxed differently based on how long you held the asset.
• If you are unsure about your tax situation or find it complex, then consider consulting a tax professional because they can help ensure accuracy and identify all available tax-saving opportunities.
• If you filed an extension, then remember that it’s an extension to file, not an extension to pay; you must still pay any estimated tax owed by the original deadline to avoid penalties.

FAQ

Q: What is the deadline to file federal taxes?

A: The typical deadline is April 15th of the year following the tax year. If April 15th falls on a weekend or holiday, the deadline is the next business day.

Q: Can I file my taxes for free?

A: Yes, if your adjusted gross income (AGI) is below a certain threshold, you may qualify for IRS Free File. Many tax software providers also offer free filing options for simple tax returns.

Q: What is the difference between a deduction and a credit?

A: A deduction reduces your taxable income, meaning you pay tax on a smaller amount. A credit directly reduces the amount of tax you owe, dollar for dollar.

Q: How do I know if I should itemize deductions or take the standard deduction?

A: You should itemize if the total of your eligible itemized deductions (like mortgage interest, state and local taxes, charitable donations) is greater than the standard deduction amount for your filing status.

Q: What happens if I miss the tax deadline?

A: If you owe taxes and miss the deadline without filing an extension, you will likely face a failure-to-file penalty and a failure-to-pay penalty, plus interest on the unpaid amount.

Q: How do I file amended taxes if I made a mistake?

A: You can file an amended tax return using Form 1040-X, Amended U.S. Individual Income Tax Return. You’ll need to explain the changes you are making.

Q: What is an AGI, and why is it important?

A: AGI stands for Adjusted Gross Income. It’s your gross income minus certain specific deductions. Your AGI is important because it’s used to determine your eligibility for many other tax deductions and credits.

Q: Do I need to report all my income, even if it’s a small amount?

A: Yes, generally, all taxable income must be reported. This includes income from side jobs, interest, dividends, and any other sources, regardless of the amount.

Q: Can I get an extension to file my taxes?

A: Yes, you can request an automatic six-month extension to file your federal taxes by submitting Form 4868. However, this does not extend the time to pay any taxes owed.

What this page does NOT cover (and where to go next)

• State and Local Taxes: This guide focuses only on federal income taxes. You will need to research and file your state and local income tax returns separately, as rules and forms vary widely.
• Specific Investment Tax Strategies: Advanced investment tax planning, such as tax-loss harvesting or understanding the nuances of cryptocurrency taxation, requires more specialized knowledge.
• Business Tax Returns: This guide is for individual filers. Businesses have different tax forms and rules, such as those for sole proprietorships, partnerships, or corporations.
• International Taxation: If you have income from or are a resident of another country, or have foreign financial accounts, you will need to consult specific resources for international tax obligations.
• Estate and Gift Taxes: Taxes on estates or large gifts are separate from income tax and have their own set of rules and thresholds.
• Retirement Planning Beyond Contributions: While contributions are mentioned for deductions, comprehensive retirement planning, including withdrawal strategies and estate planning for retirement accounts, is a broader topic.