Filing federal income tax return by April 15

Whether you like it or not, if you make earn money, it is likely to be taxable income. Income from part-time, full-time, or self-employment work is subject to federal, state and possibly local taxes. The deadline for filing income taxes is April 15, in the US. Also, income on interest on bank accounts or investments is taxable.

However, this post will focus on explaining the process of paying income taxes to the US federal government only while saving other forms of taxes for some other time. Figuring out how much income taxes one owes is a full-time job. If you have ever filed a tax return, you know you have to seek help from an experienced tax professional. But those of you who have not filed a tax return yet or need a quick-refresher, read on.

On Form W-4 an employee indicates how much income tax an employer can withhold from employee's pay.
On Form W-4 an employee indicates how much income tax an employer can withhold from employee's pay.

Let's start where the income taxes are paid or deducted, at work. When you start a new job or when you started your job, you're asked to fill out a form called W-4. Although the form has instructions to help you understand what it is asking, here are some important points to note:

  • Each withholding allowance you claim lowers the amount of tax withheld from your paycheck. This does not mean you should claim arbitrarily a high allowance to have less money deducted from your paycheck. If you pay less in taxes with each paycheck, more you will owe at the end of the year. The tax balance may also be subject to penalties. Conversely, if, more is withheld from your paycheck, more will be due to you in the form of refund. But having withheld more in taxes is not helpful either because you are not getting any interest on the money that is withheld from your pay. Therefore, indicate correct withholding allowance so the amount withheld from your pay is just enough to cover all or most of your income tax due.
  • if you have more than one job, make sure to claim your withholding allowances correctly for each employer.
  • Claiming exemption status on your W-4 form means that you do not need to have federal taxes withheld from your pay. Make sure you qualify for the exemption before making the exempt status claim otherwise you may end with a larger tax liability at the year's end.
  • Make a habit of reviewing the W-4 annually because tax situations changes.

Know that certain tax deductions reduce your tax liability. Here are some eligible tax deductions: charitable contributions, mortgage interest, real estate taxes, tax preparations fees and so on. Just because you incur these expenses does not automatically mean you will get the tax deductions. When you incur these expenses remember to keep track of your expenses in writing. This will help you have your tax liability reduced; otherwise, without the evidence of incurred expenses, you may not get your taxes reduced. Don’t forget to talk to a tax advisor when you are not sure if a particular expense qualifies for a tax deduction.

Sometime in January (likely at the end of January), you should receive a W-2 form from your employer. (During the month of January, you should also receive tax forms from your school, bank, and other financial institutions.) The W-2 form indicates the amount of pay you earned during the previous year. This form is required for you to file a tax return. For self-employed additional forms are needed for filing taxes. Your tax advisor or the IRS web site can help you determine the specific forms you need to file your taxes.

Posted on 12/24/2007
by Raj Singh