What is an income tax return?

tax return

An income tax return is a form or forms that some people must fill and file with a tax authority. It contains documents that describe income, expenses and other relevant tax information. In the U.S. tax returns are filed annually whether you are an individual or someone with a business if you have reportable income that includes wages, interests, dividends, capital gains or other profits, you’ll be filing a tax return. In the United States, tax returns are filed with the Internal Revenue Service (IRS) or a state or local tax collection agency. IRS or other relevant authority prescribes a form that can be used by all taxpayers. The information needed for filing tax returns are as follows:

Why do we need tax returns?

Taxpayers can compute their tax liability, tax payment schedules, or request for tax refunds due to over payment through filing income tax returns. It is also a sign that you are a law-abiding and responsible citizen. Taxpayers who file their tax returns regularly can easily make further transactions in the future. 

When planning to apply for a loan or a credit card, loaning and credit card companies will require you to present proof of returns before granting you a loan or issuing a card. 

You can claim tax deductions and tax refunds, as long as you file your tax returns before the due date, you can take advantage of claiming a tax deduction or a tax refund.

Filing of tax returns is needed for future inspection of the IRS. If during an inspection the IRS found out that you are not filing and paying for taxes, IRS has the authority to give you penalties. 

What is a tax return preparation?

It is the process of preparing tax returns for a person other than a taxpayer and generally for compensation. Tax preparation can be done by a licensed professional such as an attorney and a certified public accountant. Since the filing of income tax returns is complicated in the United States, many taxpayers seek outside assistance with taxes. Professional tax preparation is a common choice especially if you are expecting a large tax refund or have complicated claims. Tax return prepares can often catch credits, deductions and other opportunities for savings that untrained individuals may overlook

What is the process of preparing a tax return?

Tax filers will first determine which appropriate form should be filled out. Typically, the taxpayer will fill up the personal information which includes the filing status and dependent information.  The next step is preparing for a tax return. Make sure mistakes in tax filings are avoided by providing accurate information  to prevent the possibility of an audit. The following are steps in preparing for tax returns:

  • Income documentation. Gather all financial records for income and expenses. The most common method of reporting is a W-2 form. 
  • Reporting deductions and credits. Tax credits available will directly reduce the amount of tax being paid. Deductions decrease liability.
  • Prior tax payments. Tax withheld from employment earning during the year is included at the end of the tax return to decrease the amount of tax owed.
  • Interest and dividend income. For investment income, Form 1099 should be filled up, for interests from savings account and dividends from owned stocks Form 1099-INT and 1099-DIV are the forms to be filled. 



Have Any Financial Questions?

If you have any tax return or general tax planning questions please reach out to one of our accountants and we’ll be more than happy to help you! If you have any urgent questions please call (915) 775-1040

CPA El Paso, TX

MARCUS, FAIRALL, BRISTOL + CO., PLLC

230 Thunderbird Dr Ste G, El Paso, TX 79912

Phone: (915) 775- 1040

Full-Service CPA Firm in El Paso