How to File Your Taxes: A Step-by-Step Process

Filing an annual income tax return is a financial responsibility for most individuals in the United States. The process involves reporting income, expenses, and other financial information to the Internal Revenue Service (IRS) to determine the amount of tax owed or the refund to be received.

Gathering Your Tax Information

The first step in filing an accurate tax return is to collect all necessary documents and personal data from the previous year.

Personal Information

You will need the correct full name, date of birth, and Social Security Number or Individual Taxpayer Identification Number (ITIN) for yourself, your spouse, and any dependents. To receive a refund via direct deposit, you will also need your bank account and routing numbers.

Income Documents

Gather all documents that report your income. Employers must send Form W-2, Wage and Tax Statement, by January 31st, which details your annual wages and taxes withheld. If you are an independent contractor who earned $600 or more from a client, you will receive Form 1099-NEC for nonemployee compensation.

Other income is reported on different forms.

• Form 1099-MISC is for miscellaneous income, such as rents or prizes over $600.
• Form 1099-INT reports interest income of more than $10 from a bank.
• Form 1099-DIV reports dividends and distributions from stocks or mutual funds, for amounts of $10 or more.
• Form 1099-G reports unemployment compensation.
• Form SSA-1099 shows the total Social Security benefits you received.

Documents for Adjustments, Deductions, and Credits

To reduce your taxable income, you will need documentation for certain expenses. Homeowners who paid $600 or more in mortgage interest will receive Form 1098 from their lender. You will also need records of property taxes paid. For education expenses, eligible institutions provide Form 1098-T for tuition payments, and lenders provide Form 1098-E if you paid $600 or more in student loan interest.

Have acknowledgment letters or receipts from charities for any contributions, especially for donations of $250 or more. If you plan to deduct medical expenses, you will need a complete record of all out-of-pocket payments, including doctor’s visits, prescriptions, and mileage for medical travel.

Key Decisions Before You File

Before preparing your return, you must make several decisions that will determine your eligibility for certain tax benefits and impact your final tax liability.

Choosing Your Filing Status

Your filing status is based on your marital and family situation as of the last day of the tax year. The five filing statuses are:

• Single is for individuals who are unmarried, divorced, or legally separated.
• Married Filing Jointly is for married couples who combine their incomes and deductions on one return, which often results in a lower tax.
• Married Filing Separately is for married couples who file their own returns, which may result in a higher tax liability and limit access to certain tax benefits.
• Head of Household is for unmarried individuals who paid more than half the cost of keeping up a home for a qualifying person. This status has a larger standard deduction and more favorable tax brackets than Single.
• Qualifying Widow(er) can be used for two years after a spouse’s death if the surviving spouse has a dependent child and has not remarried.

Standard Deduction vs. Itemized Deductions

You must choose between taking the standard deduction or itemizing deductions. The standard deduction is a fixed dollar amount that reduces your adjusted gross income (AGI). For the 2024 tax year, the standard deduction is $14,600 for single individuals, $29,200 for married couples filing jointly, and $21,900 for heads of household.

Itemizing involves listing specific expenses on Schedule A of Form 1040. Common itemized deductions include state and local taxes (capped at $10,000 per household), home mortgage interest, medical expenses exceeding 7.5% of your AGI, and charitable contributions. You should itemize only if your total eligible expenses are greater than the standard deduction for your filing status.

Choosing Your Filing Method

After gathering your documents and making key decisions, select the method you will use to prepare and submit your tax return.

Tax Preparation Software

Do-it-yourself (DIY) tax software guides you through the process with a question-and-answer format. The cost can range from free for simple returns to over $100 for complex situations involving investments or self-employment. This method is well-suited for individuals with straightforward tax situations who are comfortable using a computer.

IRS Free File

The IRS partners with tax software companies to offer free online tax preparation and e-filing through its Free File program. IRS Free File Guided Tax Software is available to taxpayers with an AGI below a certain threshold, which is $84,000 for the 2024 tax year. A second option, Free File Fillable Forms, are electronic versions of paper IRS forms available to all taxpayers but provide no tax guidance.

Hiring a Tax Professional

For those with complex finances, such as business ownership or intricate investments, hiring a tax professional is a sensible approach. Professionals like Certified Public Accountants (CPAs) and Enrolled Agents (EAs) have in-depth knowledge of tax law and can help identify deductions and credits. While this is the most expensive option, it provides personalized advice and representation in the event of an IRS audit.

Filing by Mail

Mailing a paper tax return is the slowest method. It requires you to manually fill out forms, attach physical copies of your W-2s and other documents, and mail the package to an IRS service center. This method results in the longest processing times for both the return and any potential refund.

Step-by-Step Guide to Submitting Your Return

With your documents, decisions, and filing method set, you are ready to submit your tax return.

If Using Tax Software/IRS Free File

When using tax software, you will be prompted to enter your financial information, and the software will perform the calculations. Before submitting, review the completed return for accuracy. The final step is to provide an electronic signature, which is a self-selected Personal Identification Number (PIN), and then transmit your return. Save or print the submission confirmation page as proof of filing.

If Filing by Mail

When filing a paper return, place Form 1040 on top, followed by any numbered schedules and forms in order of their “Attachment Sequence Number.” Staple copies of your Form W-2 and any other forms showing federal tax withholding to the front of Form 1040.

You must sign and date the return in ink. Find the correct mailing address on the IRS website or in the Form 1040 instructions, as it varies by state and whether you are enclosing a payment. Using certified mail with a return receipt is recommended for proof of timely filing.

If Using a Tax Professional

A tax professional will handle the technical preparation, but you are still responsible for the information on your return. Review the completed copy for accuracy. Once you confirm it is correct, you will sign Form 8879, IRS e-file Signature Authorization, which allows the preparer to e-file the return on your behalf.

Post-Filing Procedures

After your tax return is submitted, a few final tasks remain. These steps involve tracking your refund, paying any tax owed, and storing your records.

Tracking Your Refund

If you are expecting a refund, you can monitor its status using the “Where’s My Refund?” tool on the IRS website or the IRS2Go mobile app. You will need your Social Security Number or ITIN, your filing status, and the exact refund amount. The tool shows your return’s progress through three stages: Return Received, Refund Approved, and Refund Sent.

Making a Tax Payment

If you owe taxes, you have several payment options. IRS Direct Pay allows you to pay for free from a checking or savings account on the IRS website. You can also pay with a debit or credit card through a third-party processor, which charges a fee. Another option is the Electronic Federal Tax Payment System (EFTPS), a free government service that requires enrollment. To pay by mail, send a check or money order payable to the “U.S. Treasury” with Form 1040-V, Payment Voucher.

Record Keeping

Keep a copy of your filed tax return and all supporting documents. The IRS recommends keeping tax records for at least three years from the date you filed, as this is the period during which an audit can occur. You should keep records for six years if you substantially underreport your income and for seven years if you file a claim for a loss from worthless securities. Store these records in a safe and organized manner.