Tax return

A tax return is a form on which a person or organization presents an account of income and circumstances, used by the tax authorities to determine liability for tax.^[1]^[2]

Tax returns are usually processed by each country's tax authority, known as a revenue service, such as the Internal Revenue Service in the United States, the State Taxation Administration in China, and HM Revenue and Customs in the United Kingdom.

Preparing the tax return

A tax return reports income, expenses, tax payments made during the year and other relevant information to the taxing authority. It helps to determine whether a tax refund is due. This will depend on whether a person has overpaid on taxes, or was late in paying tax for previous years.^[3]

A person or organization may not be required to file a tax return depending on circumstances, which are different in each country. Generally, a tax return does not need to be filed if income is less than a certain amount, but other factors such as the type of income, age, and filing status also play a role. Occasionally, there may be situations where the tax return need not be filed, but is filed anyway to receive a tax refund.^[4]

The tax return is not necessarily the final calculation; it may be accepted or not accepted as correct by the government authority.^[5]

The time and effort involved in filing a tax return varies from country to country, but governments try to help citizens in different ways. Many governments utilize electronic filling and payment systems that keep a record of a person's history of tax returns and refunds. Another notable change in recent years is that government bodies share the data with each other. Within several European nations such as Denmark and Sweden, governments already provide citizens with prefilled return forms, which a citizen would sign if accurate, and if not, can fix the error on their own or prepare returns themselves.^[6] In Denmark and Sweden, 97 percent and 74 percent of taxpayers had their forms prefilled by tax authorities respectively in 1999.^[7]

The length of the completion of a tax return depends on the country, but the world average is almost 232 hours.^[8]

Components of a tax return

A tax return usually includes the following components.

Income consists of the sources of a citizen's revenue, excluding items which are exempt from tax by law. Wages, salaries, income from retirement plans, dividends, interest and capital gains or losses should be considered as a source of revenue.^[9]^[10]^[11]

Taxable income includes wages, salaries, rental income, dividends, and business profits, after deducting any allowable deductions. In Australia, the concept of taxable income is central to determining the amount of income tax you are liable to pay.^[12]

Deductions are items that are subtracted from taxable income, thereby reducing the tax liability.^[13] For organizations, most expenses specifically identified with business tasks are deductible. Examples of tax deductions include mortgage interests, student loan interest, contributions to saving plans for retirement etc. In general, taxes paid will be less when the taxpayer chooses the larger of itemized deductions or the standard deduction.^[14] The standard deduction varies according to filing status. In the United States, the standard deduction is higher for older taxpayers (65 and above). If the taxpayer chooses to itemize, such deductions are recorded on Schedule A. Itemized deductions should be supported by documentation which the taxpayer retains after filing the tax return.^[15]

Tax credits reduce the amount of paid to government entities. Tax credits are more impactful than deductions because they directly reduce the amount of tax owed. If a person has $500 in tax credits, and the tax owed is $500, the tax credits will reduce a person's liability to zero. Tax credits arise from multiple areas. For example, a person may receive a Child Tax Credit if they care for a child under the age of 13. Education expenses might be treated as a tax credit in some countries, such as the American Opportunity Tax Credit in the United States.^[16]

Payments and refunds include estimated tax payments and amounts withheld from your paycheck. If you've overpaid your taxes, you'll receive a refund.^[17]

Tax schedule

In the United States, a tax schedule is a form that the Internal Revenue Service (IRS) requires taxpayers to fill out in addition to the tax return. It is a tool that reports and provides information about the additional calculations and other amounts stated in the tax return.^[18]

Tax schedules are used by both taxpayers and taxation authorities such as the IRS. Simple tax returns can be filed using the Form 1040 whereas complex tax returns additionally require a tax schedule to be completed with the tax return. There are different types of schedules such as Schedule A, Schedule B, Schedule C, Schedule D, Schedule EIC, and Schedule SE. Specific tax forms can be used by taxpayers or private entities that are required to report information on their tax liabilities, including income earners, businesses, and companies.^[19]

References

^ "income tax return – noun". Merriam-Webster Dictionary. Archived from the original on 23 June 2023. Retrieved 13 May 2024.
^ Stevenson, Angus, ed. (2010). Oxford Dictionary of English (Third ed.). Oxford University Press. p. 1823. ISBN 9780199571123.
^ "What Is a Tax Refund and Why Do You Get One?". SmartAsset. 22 January 2021. Archived from the original on 9 April 2021. Retrieved 28 March 2021.
^ "Does Everyone Need to File an Income Tax Return?". turbotax.intuit.com. Archived from the original on 14 November 2022. Retrieved 28 March 2021.
^ "Tax Return". Legal Information Institute. Cornell Law School. Retrieved 14 May 2024.
^ Huseman, Jessica (20 March 2017). "Filing Taxes Could Be Free and Simple". propublica.org. Archived from the original on 30 June 2022. Retrieved 30 June 2022.
^ "What other countries use return-free filing?". taxpolicycenter.org. Archived from the original on 5 June 2022. Retrieved 30 June 2022.
^ "Time to prepare and pay taxes". data.worldbank.org. Archived from the original on 3 March 2021. Retrieved 27 March 2021.
^ Instructions, 1040 and 1040-SR, Tax Year 2023 (PDF). Department of the Treasury, Internal Revenue Service. p. 22.
^ "Policy Basics: Where Do Federal Tax Revenues Come From?". Center on Budget and Policy Priorities. 20 August 2012. Archived from the original on 8 November 2020. Retrieved 1 November 2020.
^ Motiani, Preeti. "ITR filing: Computing your total taxable income". The Economic Times. Archived from the original on 19 March 2022. Retrieved 19 March 2022.
^ Zaheer, Jaxon Rylah, Kinza (16 June 2023). "Understanding Tax Returns in Australia: In Depth Overview". taxly.ai. Archived from the original on 14 November 2023. Retrieved 14 November 2023.{{cite web}}: CS1 maint: multiple names: authors list (link)
^ Merriam Webster Dictionary op. cit. "Deduction – noun".
^ Instructions, 1040 and 1040-SR, Tax Year 2023 op cit p. 31.
^ "Taxpayers should know the difference between standard and itemized deductions". Internal Revenue Service irs.gov. Archived from the original on 6 May 2022. Retrieved 19 March 2022.
^ Jennifer Woods (11 April 2016). "The top 10 tax credits that should be on your radar". CNBC. Archived from the original on 30 November 2020. Retrieved 2 November 2020.
^ "Mastering IRS Tax Form 1040: U.S. Individual Tax Return". 11 September 2023. Archived from the original on 1 October 2023. Retrieved 29 November 2023.
^ "What Is a Tax Schedule?". The Balance. Archived from the original on 19 May 2022. Retrieved 19 March 2022.
^ "Income tax return". ato.gov.au. Archived from the original on 22 August 2018. Retrieved 22 August 2018.