How to Do Your Taxes: A Step By Step Guide for 2020
If you’re new to filing your taxes in the United States, you may be confused or uncertain about your next steps. Whether you’re starting out in the working world, always had your taxes handled by your family or are new in the country, there is a lot to learn about your annual income tax filing. Here are some key tips that can guide you as you get ready to handle your tax filings in 2020.
When you work as an employee at a job with a regular paycheck, you will generally have taxes taken out before you ever receive your pay, and an income tax filing can help you get a refund and fulfill your responsibilities.
On the other hand, if you run a business, work in the gig economy or freelance, you may need to pay some taxes for the 2019 year. In either case, keeping these things in mind can help to ensure your filings are complete, appropriate and provide the maximum savings you need.
Do you need to file a tax return?
When you start a new job, you typically fill out a W-4 form. This form is used by employers and the IRS to estimate your withholding from each paycheck.
When you set up your withholding when first employed, the way you answer key questions can result in either an overpayment or an underpayment of taxes.
This is especially true if you do not change your withholding after major changes in your life, such as marrying, divorcing or having a child.
Many people work multiple jobs or bring in income on the side. This work can help fulfill a passion or make ends meet, but it can also change your tax responsibilities, and you may wind up owing more taxes. (Of course, some of these extra taxes may be offset by deductions, overpayments or credits.)
To appropriately measure your tax burden each year, you need to file an income tax return, typically the IRS Form 1040. Completing your tax forms will help to determine if you will receive a refund or if you must make an additional payment and the specific amounts involved.
In many cases, you will also need to file a state income tax return, although the specific laws vary from state to state.
For the 2019 tax year, your tax return must be filed on or before April 15, 2020.
How do you file a tax return?
There are several ways you can file your tax return. The old-fashioned way, which is still an option, is to manually fill out an IRS 1040 on paper.
The IRS provides instructions for completing the form. You can mail the form to the IRS and enclose any taxes due; if you are owed a refund, you can provide direct deposit information as part of your submission.
On the other hand, many people prefer to e-file their tax returns. Many tax software programs and websites that offer different services across a range of prices. If you make an annual gross income of $69,000 or less, you may be eligible for the IRS Free File program, which provides access to tax software at no cost.
Tax software will ask you questions about your income and expenses for the year and attempt to determine all of the credits and deductions for which you are eligible. If the software asks questions that seem to be irrelevant, the subject typically relates to a specific tax credit or deduction available to some Americans. The software will help you complete the form yourself and then file it electronically on your behalf.
Using a Tax Professional
You can also choose to go to a professional, an accountant or a tax preparer. This may be a particularly good choice if you have complex income sources, own a small business or invest and receive dividends. A tax professional will review your financial records, prepare your taxes and look for credits and deductions in order to maximize your refund. Your accountant will file the return on your behalf.
Online Tax Professionals
Another option can provide the benefits of an accountant with the ease of online tax preparation. Picnic Tax provides its services for a flat, fixed fee, so there are no surprise expenses associated with an hourly rate. We connect you with an experienced online accountant skilled in the specific areas of concern for your tax return.
Just upload your documents online, and your online accountant will complete your return to reduce your burden and maximize your refund. At the end, you will electronically sign your return and Picnic Tax will file it for you.
How much do you need to pay?
In general, your annual income tax obligation is determined based on your total income. Your overall tax rate is determined through a series of tax brackets, as the U.S. has a progressive income tax system whereby higher incomes are taxed at higher rates.
However, only the percentage of income within the bracket will be taxed at that percentage; whether a person makes $40,000 or $400,000, they will pay the same amount of taxes on that first $40,000, while the wealthier person will pay higher tax rates on higher portions of their income.
Your tax burden is also affected by your filing status, such as whether you are single, married or the head of household, which means you have a dependent living in the home.
At the beginning of 2020, you will receive forms from those who you worked for in 2019. Employers will provide W-2 forms, while freelancers and contractors will receive 1099 forms from the companies they worked with.
These forms are also submitted to the IRS and document your gross income as well as any taxes paid during the year. You may also receive other tax forms for partnership, investment, rental and other types of income. If you did not receive a form for some of your income, you still need to report it to the IRS and include it in your tax calculations.
You can typically reduce your taxable income by taking deductions. Many people may benefit from simply taking the standard deduction, but others may benefit from itemizing their deductions. These deductions reduce the overall taxable part of your income. On the other hand, tax credits work as if you had paid those taxes, being credited directly to your tax balance due.
If you own a business or work as a freelancer, your taxable income is not simply the amount that you took in from your self-employed work. The costs of doing business are first subtracted before your taxes are assessed, which you can document on Schedule C of your Form 1040.
Your accountant or even tax software can provide guidance in finding the right tax credits, claiming all of your deductions and properly calculating your self-employment income after expenses.
How do you get a refund (or pay what you owe)?
When you complete your income tax forms, you will determine the balance remaining. One of three things will happen:
- You may receive a refund
- You might have an even account (not owe anything and not be owed anything)
- You could owe money to the IRS
If you do owe, you will generally need to submit the amount along with your filing. You may be able to work out a payment plan if necessary; in future years, business owners and freelancers may be expected to pre-pay quarterly.
If you are owed a refund, most people choose to provide direct deposit information to receive their refund directly to their bank account, although you can also still receive a mailed check.
Make sure to keep a copy of your tax return after it is filed. You may need to refer to it in case of any questions, and it can also help to document your income and expenses. In addition, it can help you or your tax professional to prepare future filings as well.
At Picnic Tax, our skilled online accountants help you to navigate the process of filing and paying your taxes. Their expertise can be particularly important when you have multiple streams of income and still want to maximize your refund. To learn more about how Picnic Tax can help you file your taxes in 2020, contact us today.