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HOW TO FILE TAXES ONLINE

A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim. (Tax refunds are often paid after the end of the tax year.)

BREAKING DOWN ‘Tax Return’

In the U.S., individuals use Form 1040, corporations use Form 1120, and partnerships use Form 1065 to file their annual returns, while investment income is recorded on Form 1099.

Typically, a tax return begins with an identification section and is then divided into three main sections: income, deductions and credits. The return itself is only a few pages long, but depending on the type of income declared or the credits and deductions requested, there can be several schedules that need to be added on.

Income

In this part of the return, the person preparing it must indicate all forms of income received during the year from all sources. Salaries, dividends, royalties and, in many countries, capital gains must be reported.

Deductions

Taxpayers will then be entitled to various deductions. These vary greatly from jurisdiction to jurisdiction, but typical examples include contributions to retirement savings plans, alimony paid and interest deductions on certain loans. For businesses, all expenses incurred in order to conduct the business is deductible.

At this point in the return, the taxpayer will be able to determine his taxable income and tax payable.

Credits

The next section of the return deals with any tax credits that the taxpayer may be entitled to. Again, these vary greatly from jurisdiction to jurisdiction, but there are often credits attributed for dependent children, old age pensions, education and many more. The total credits are subtracted from the taxpayer’s tax payable.

The end of the return is used to calculate if the taxpayer has an amount to pay or is entitled to a refund. Most salaried employees have taxes withheld at source on each pay, so they may be entitled to a refund if too much tax has been withheld during the year. Similarly, corporations and individuals in business may make quarterly advance payment to keep their tax balance running as close to $0 as possible and avoid oversized tax bills at the end of the year.

Internal Revenue Service (IRS)

A tax return is the tax form or forms used to report income and file income taxes with tax authorities such as the Internal Revenue Service (IRS) in the United States. Tax returns allow taxpayers to calculate their tax liability and remit payments or request refunds, as the case may be. In most countries, tax returns must be filed every year for an individual or business that received income during the year, whether through wages, interest, dividends, capital gains or other profits.

According to the Internal Revenue Service, 77% of tax returns filed in 2004 resulted in a refund check, with the average refund check being $2,100. In 2011, the average tax refund was $2,913. Taxpayers may choose to have their refund directly deposited into their bank account, have a check mailed to them, or have their refund applied to the following year’s income tax. As of 2006, tax filers may split their tax refund with direct deposit in up to three separate accounts with three different financial institutions. This has given taxpayers an opportunity to save and spend some of their refund (rather than only spend their refund). Every year, a number of U.S. taxpayers around the country get tax refunds even if they owe zero income tax. This is due to withholding calculations and the earned income tax credit. Because withholding is calculated on an annualized basis, an individual just entering the work force or unemployed for a long period of time will have more tax than is owed withheld. Refund anticipation loans are a common means to receive a tax refund early, but at the expense of high fees that can reach over 200% annual interest. In the 1990s, refunds could take as long as twelve weeks to come back to the taxpayer; however, the average time for a refund is now six weeks, with refunds from electronically filed returns coming in three weeks.

Some people believe that getting a large tax refund is not as desirable as more accurate withholding throughout the year, as a large refund represents a loan paid back by the government interest-free. Optimally, a return should result in a payment owed of just less than the amount that would cause a penalty charge, which is 100% of the prior year’s tax (110% for high income individuals), 90% of the current year’s tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax. In order to decrease the amount of the tax refund which has to be received by taxpayers, they can turn to one or several of the following methods:

• adjust the amount of tax the federal government withholds from the paycheck. It is recommended for taxpayers to do this in cases where their adjustments to income, exemptions, and deductions remain relatively steady from year-to-year, and if the government consistently is required to give a large refund.

• in the case of people entirely exempt from state tax, they can check with their state income tax authority to see if there is an appropriate form that can be completed and filed, which would exempt them from state withholding

• check tax rates and adjusted gross income thresholds (applicable if taxpayers are hovering near the bottom of certain tax brackets and changes have been made to the thresholds and/or tax rates)

• take advantage of the medical expense deduction (applicable for medical expenses now imposed for tax years starting in 2013)

• maximizing the amount allowed to save tax-free for retirement

However, some people use the tax refund as a simple “savings plan” to get money back each year (even though it is excess money that they paid earlier in the year). Another argument is that it is better to get a refund rather than to owe money, because in the latter case one might find oneself without sufficient funds to make the necessary payment. When properly filled out, the Form W-4 will withhold approximately the correct amount of tax to eliminate a refund or amount owed, assuming the W-4 was filled out at the beginning of the tax year.

A U.S. federal law signed in 1996 contained a provision that required the federal government to make electronic payments by 1999. In 2008, the U.S. Treasury Department paired with Comerica Bank to offer the Direct Express Debit MasterCard prepaid debit card. The card is used to make payments to federal benefit recipients who do not have a bank account. Tax refunds, however, are exempt from the electronic payments requirement. However, many U.S. states send tax refunds in the form of prepaid debit cards to people who do not have bank accounts.