What Is a Tax Return and How Long Must You Keep Them?

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What Is a Tax Return and How Long Must You Keep Them?

What Is a Tax Return?

A tax return is a document or forms that are submitted with a tax authority and disclose income, spending, and other relevant tax information. Tax returns enable taxpayers to assess their tax due, plan their tax payments, and receive refunds for overpayments. In most nations, a person or corporation having reportable income, such as wages, interest, dividends, capital gains, or other earnings, must submit an annual tax return.

Key Takeaways

  • A tax return is a document submitted with the IRS that includes income, spending, and other important financial information.
  • Taxpayers use tax returns to determine their tax due, schedule tax payments, and obtain refunds for overpayments.
  • Annual tax returns are required in most areas.

Understanding Tax Returns

In the United States, tax returns including information necessary to compute taxes are submitted with the Internal Revenue Service (IRS) or with the state or local tax collecting agency (Massachusetts Department of Revenue, for example). In most cases, tax returns are completed using forms required by the IRS or another applicable entity.

Individuals in the United States submit federal income taxes using variants of the Internal Revenue Service’s Form 1040. To submit their yearly reports, corporations will utilize Form 1120, while partnerships will use Form 1065. To record revenue from non-employment sources, a number of 1099 forms are utilized. Form 4868 is used to request an automatic extension of time to submit a U.S. individual income tax return.

A tax return often starts with the taxpayer giving personal information such as their filing status and dependant information.

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The Sections of a Tax Return

In general, tax returns contain three key areas where you may disclose your income and assess your eligibility for deductions and tax credits:

Income

A tax return’s income section includes all sources of income. A W-2 form is the most often used way of reporting. Wages, dividends, self-employment income, royalties, and capital gains must all be recorded in various nations.

Deductions

Deductions reduce your tax obligation. Tax deductions vary greatly by jurisdiction, but common examples include contributions to retirement savings programs, alimony payments, and interest deductions on certain loans. Most costs directly connected to company operations are deductible for corporations. For their filing status, taxpayers may itemize deductions or take the standard deduction. Once all deductions have been subtracted, the taxpayer may calculate their tax rate based on their adjusted gross income (AGI).

Tax Credits

Tax credits are monies that are used to offset tax obligations or taxes payable. These, like deductions, vary greatly among jurisdictions. However, credits are often assigned to the care of dependent children and elders, pensions, education, and many other things.

Following the reporting of income, deductions, and credits, the conclusion of the return specifies the amount of taxes owed or the amount of tax overpayment. Overpayments may be repaid or carried over to the following tax year. Taxpayers have the option of making a single payment or making recurring installments. Similarly, most self-employed persons may make quarterly advance payments to lower their tax burden.

Special Considerations

The IRS advises filers to maintain tax returns for at least three years. Other conditions, however, may need a longer period of retention. Some circumstances may necessitate the indefinite keeping of submitted returns.

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If a tax return includes mistakes, an updated return must be filed to fix the problem.

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