Every year around March accountants perk up, strange letters from financial institutions start showing up in the mail, and the air becomes crisp with the smell of newly printed tax refund checks. It’s tax return season, and if you’re like the majority of Americans, you’re seeing dollar signs.
Before you can get your hands on a refund check, however, you’ve got to tell the Tax Man how much he owes you, and that means filing a tax return. Luckily, your employer, bank, and school already do most of the number crunching for you! They will mail you various tax forms telling you how much you earned at your day job, how much interest or investment income you earned, and how much tuition you paid acquiring your degree. These forms will help you figure out how much your refund will be, but first you should understand what they all mean and how to use them.
Forms you file:
- Form 1040: This is your tax return. Everyone needs to file a 1040 unless they didn’t earn any money or are being claimed as someone else’s dependent. There are 3 flavors: 1040EZ, 1040A, and the classic 1040. You can fill it out with a pen and paper, using software like TurboTax, or a service like H&R Block. Once you click the “e-file” button in your tax prep software, your 1040 is magically delivered to the IRS’ database. After a few weeks they send you a refund check (unless you owe them money, uh oh!). Failure to file a timely 1040 may result in fines/penalties and the IRS certainly won’t mail you a refund check unless you tell them to by filing.
Forms you don’t file (“Informational forms”):
(Note: keep these informational forms in your records but don’t file with your tax return)
- W-2: This form is mailed to you by your employer and tells you how much you earned working for them. And, more importantly, it tells you how much your employer deducted from your paycheck and sent to the IRS on your behalf. If they deducted $10,000 but you find that you should have paid only $7,000, then it’s your lucky day: You’re getting $3,000 back!
- Forms 1099: This is a form sent to you by a third party (e.g. a bank) that provides information to help you fill out your tax return. Form 1099 is used to report various types of income. There are lots of variations of Form 1099, but one of the most common is Form 1099-INT. Yep, you guessed it, the INT stands for interest! This form tells you how much interest your bank account earned during the year. That interest is taxable income so it needs to be reported on your tax return, and the 1099-INT simply tells you how much you need to report. Here are some common 1099s:
- 1099-MISC: used to report income earned as a contractor (e.g. through freelance or project-based work)
- 1099-INT: used to report interest income1099-DIV: used to report dividend income
- 1099-K: used to report income from third parties (e.g. selling goods on eBay or Amazon)
- Forms 1098: This form is also mailed to you by third parties (e.g. a school) to help you fill out your tax return. You should be really excited when you get a 1098 because it means that you can claim a deduction on your tax return. For example, if you’re a college student, your school will mail you a Form 1098-T that says how much tuition you can deduct. Here are some common 1098s:
- 1098-C: used to report a charitable donation (e.g. donating your car to a charity is deductible, so the charity will send you a 1098-C)
- 1098-E: used to report deductible student loan interest
- 1098-T: used to report deductible tuition expenses
Once you have all of these informational forms in hand, you are ready to tackle the 1040. If you think you should have received an informational form, simply visit the institution’s website and look for their “Tax Center” page, or call them and ask them about where to find your tax forms. You don’t need one of these forms to report income or claim a deduction, but you should probably consult a tax veteran before straying too far outside of your comfort zone.
After you’ve filed, check out GoodApril’s Tax Checkup to get your next tax year started on the right foot. We’ll generate a personalized tax savings to-do list, for instance, to help you save some green next April.
IRS Publication: A Guide to Information Returns
Image Credit: LifeVesting.com
Latest posts by Mitchell Fox (see all)
- Where to Start Your Startup: The Top Cities by Cost and Taxes - July 15, 2013
- Education Tax Credits For the Self-Employed and Employees - July 8, 2013
- Our Newest Tax Nerd: Graham Hunter, Marketer - July 2, 2013