Preparing and Filing Tax Returns for Individuals

Filing a personal income tax return is a yearly financial task for most people in the United States using IRS Form 1040. The U.S. operates on a pay-as-you-go system, meaning you pay tax on income as you receive it. Your annual tax return reconciles the amount you’ve paid through withholding or estimated payments with what you actually owe.

If you paid more than your calculated liability, you are due a refund; if you paid less, you will owe the remaining balance. This annual filing ensures that each individual contributes their fair share to fund government services based on their earnings.

Determining Your Filing Requirement

Whether you must file a tax return depends on three factors: your gross income, filing status, and age. Gross income includes all money you receive that is not tax-exempt. The IRS sets annual income thresholds, and if your income is above the amount for your situation, you must file a return.

For the 2024 tax year, a single individual under age 65 must file if their gross income is at least $14,600. This threshold increases to $16,550 for single individuals aged 65 or older. For those who are married and filing a joint return, the threshold is $29,200 if both spouses are under 65, and this amount increases if one or both spouses are 65 or older.

A head of household under age 65 must file if their income reaches $21,900. One of the lowest thresholds applies to those who are married but file separately; these individuals must file a return if their gross income is just $5.

Certain situations require you to file even if your gross income is below the standard thresholds. You must file if you have net earnings from self-employment of $400 or more to ensure payment of Social Security and Medicare taxes. Other circumstances that mandate filing include owing special taxes or receiving distributions from a health savings account.

Gathering Your Tax Information and Documents

To prepare an accurate tax return and avoid delays, you must first collect all necessary information and documents.

Personal Information

You will need the full names, dates of birth, and Social Security Numbers (SSNs) for yourself, your spouse if filing jointly, and any dependents. An Individual Taxpayer Identification Number (ITIN) is used if a person is not eligible for an SSN. A copy of last year’s return is also useful, as the Adjusted Gross Income (AGI) may be needed to verify your identity for e-filing.

Income Documents

Form W-2, which you receive from each employer, is the most common income document and details your total wages and taxes withheld. If you received other types of income, you will need various forms from the 1099 series. Form 1099-INT reports interest income, while Form 1099-DIV shows dividend income.

Self-employed individuals or independent contractors will receive a Form 1099-NEC for payments of $600 or more from a single client. Those who received unemployment will get a Form 1099-G, and retirees receive a Form 1099-R for distributions from retirement accounts. Collect all of these forms, as the IRS receives a copy of each and matches it to your return.

Documents for Deductions and Credits

You will need documentation for any deductions or credits you plan to claim. For homeowners, Form 1098 reports mortgage interest paid. Form 1098-T shows tuition payments for higher education, and Form 1098-E details student loan interest paid.

Other records include receipts for charitable contributions, summaries of medical and dental expenses, and records of property taxes paid on your home or vehicle if you plan to itemize deductions.

Bank Account Information

Your bank’s routing number and your account number are needed for direct transactions with the IRS. This information allows the IRS to directly deposit any refund into your account, which is the fastest way to receive it. If you owe taxes, you can use this information to authorize a direct debit payment.

Understanding Key Tax Concepts

A few core concepts work together to calculate your final tax liability or refund.

Filing Status

Your filing status is based on your marital and family situation at the end of the tax year. This status dictates your standard deduction, tax brackets, and eligibility for certain tax benefits. The five available statuses are:

• Single
• Married Filing Jointly
• Married Filing Separately
• Head of Household
• Qualifying Surviving Spouse

Income

Income is separated into earned and unearned categories. Earned income includes salaries, wages, and net earnings from self-employment. Unearned income comes from sources like interest, dividends, and capital gains. All of your income is added together to calculate your gross income.

From your gross income, you subtract certain “above-the-line” deductions, such as contributions to a traditional IRA or student loan interest paid, to arrive at your Adjusted Gross Income (AGI). Your AGI is used to determine eligibility for many deductions and credits, as the ability to claim them often phases out at higher AGI levels.

Deductions

Deductions are expenses subtracted from your AGI to lower your taxable income. You have the choice between taking a standard deduction or itemizing your deductions. The standard deduction is a fixed dollar amount that varies based on your filing status, age, and whether you are blind.

Itemized deductions are specific, eligible expenses you can subtract from your AGI. Common itemized deductions include mortgage interest, state and local taxes up to a combined limit of $10,000, and charitable contributions. Choose the method that results in the larger deduction to achieve the greatest tax savings.

Tax Credits

Tax credits are more powerful than deductions, providing a dollar-for-dollar reduction of your tax bill. Credits are broadly categorized as either nonrefundable or refundable. A nonrefundable credit can reduce your tax liability to zero, but no amount is paid out as a refund.

A refundable credit can also reduce your liability to zero, and any leftover amount is paid to you as a refund. Common credits include the Child Tax Credit, the Earned Income Tax Credit for low-to-moderate-income workers, and education credits like the American Opportunity Tax Credit.

Methods for Preparing and Filing Your Return

There are three primary methods for preparing and filing your return, each with different costs and levels of convenience.

Tax Preparation Software

Tax preparation software is a popular method for filing. Online platforms guide you through the process with a question-and-answer format. The program performs all necessary calculations, fills in the appropriate tax forms, and helps identify potential deductions and credits.

Once you review the completed return for accuracy, the software allows you to file it electronically with the IRS, known as e-filing. The cost for these services can range from free for simple returns to over $100 for more complex situations.

Hiring a Tax Professional

For complex situations or expert guidance, you can hire a tax professional, such as a Certified Public Accountant (CPA) or an Enrolled Agent (EA). A professional can offer personalized advice and may identify tax-saving opportunities you might have missed. After you review and sign the return, they will file it electronically for you. This method is the most expensive but provides a high level of assurance.

Filing by Mail (Paper Filing)

Filing by mail is the slowest and most error-prone method. This process involves downloading tax forms from the IRS website, filling them out by hand, and mailing the package to the designated IRS processing center. Processing time for a paper return and any refund is significantly longer than for an e-filed return.

After You File Your Tax Return

Several steps may follow after you submit your return, from tracking a refund to making payments.

Tracking Your Refund

If you are due a refund, you can monitor its status using the “Where’s My Refund?” tool on the IRS website. You will need your Social Security Number, filing status, and the exact refund amount. E-filed returns can be tracked within 24 hours of submission, while paper-filed returns may take four weeks or more to appear in the system.

Making Tax Payments

If you owe taxes, pay by the filing deadline to avoid penalties and interest. The IRS offers several payment options, including IRS Direct Pay from your bank account for free. You can also pay with a debit card, credit card, or digital wallet, though these methods involve processing fees. For those who cannot pay the full amount at once, the IRS website provides options for setting up a payment plan.

Receiving IRS Notices

A notice from the IRS does not automatically indicate a problem; many are requests for information or notifications of minor adjustments. The IRS may send a notice if they corrected a mathematical error or if your reported income does not match their records. Read any notice carefully and respond by the specified deadline.

Amending a Return

If you discover a mistake after filing, you can correct it with an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return. You should file an amended return to correct your filing status, dependents, income, deductions, or credits.

You have three years from the date you filed your original return, or two years from the date you paid the tax, whichever is later, to file Form 1040-X. The status of an amended return can be tracked using the separate “Where’s My Amended Return?” tool on the IRS website.