Filing Personal Taxes: A Legal Guide

There is a saying that nothing is guaranteed in life except death and taxes. While this is a morbid perspective, it has some truth to it. American taxpayers must file their annual income tax return with the Internal Revenue Service (IRS) each year. The best approach for having a smooth income tax season is to plan. Tax preparation includes learning about tax requirements, filing requirements, and the potential consequences of not filing.

What Are Personal Income Tax Requirements?

Individuals are responsible for paying their federal, state, and local taxes. These taxes are generally paid annually. It is important that everyone pay their tax liability by the annual due date. Not paying doesn’t make the debt go away; it will only allow the debt to continue to increase.

Exemptions

Not everyone is required to pay taxes. If someone’s gross income is below the threshold, they aren’t required to pay federal income taxes. There are also exemptions for state taxes. For example, many states offer exemptions for property tax requirements. Speaking with a tax attorney or professional can help determine if you are tax-exempt.

Deadlines

Federal income tax returns are due by April 15th. Generally, you file your state income taxes at the same time if they are required. Other taxes have varying due dates, so it’s best to check with your state for the correct due date. Extensions are available for those needing more time to file their tax return.

Forms

You will use several tax forms when filing your taxes. Form 1040 is the most commonly used US Individual Income Tax Return. If you are a salaried employee, your employer will send a W-2, a Wage and Tax Statement. Form 1099-NEC, a Nonemployee Compensation Form, is commonly used by self-employed individuals who must report client income. Schedule C is the form used to report profit and loss from a business. Form 1098 is for claiming your mortgage or student loan interest paid.

The easiest method for obtaining the necessary forms is on the IRS website. You can also call the IRS and request them through your tax prep software or tax professional, or by calling the IRS.

What Is a Personal Income Tax Return?

A federal income tax return is a series of forms and documents you complete and submit to the Internal Revenue Service (IRS). Generally, almost all US citizens and permanent residents must file their tax returns annually. There are two submission method options: paper and e-file. If you file electronically, there are several tax preparation software options, such as TurboTax. You can also hire a tax professional to prepare your tax filing.

To file your taxes, you must gather your income and expense documents. This could include income tax forms from your employer, receipts, or loan payment documents. Once you complete your individual income tax return, check it for errors. Sign your return and submit it to the IRS. If you owe money, make your tax payment. If you are owed a refund, keep an eye out for the IRS to process your return and send payment.

Common Tax Deductions and Credits

The majority of taxpayers receive the standard deduction but have the option of choosing an itemized deduction approach. The standard deduction will reduce your tax liability by a fixed amount based on your filing status and income. There is no guarantee of the deduction amount when you itemize your deductions. For most people, the standard deduction is the better option.

When preparing your taxes, you can apply additional deductions and credits. Deductions reduce the amount of income subject to tax, and credits reduce your tax liability directly. There are a few common tax credits and deductions that people can find themselves qualifying for.

1. Homeowner Deductions

Those who own a home with a mortgage may qualify for an interest deduction. The total amount you can deduct will depend on your filing status and when you bought your home. If you paid for mortgage points when you originated your loan, you may be able to deduct them for the tax year you paid for them.

2. Medical Deductions

If taxpayers choose to itemize deductions, they can claim qualifying medical expenses. These expenses must exceed a certain percentage of their adjusted gross income. This deduction provides relief for significant medical costs.

3. Student Loan Deductions

If you have a student loan, you can deduct the interest paid on that loan. However, you can only claim a certain amount of interest. You will receive a tax form from your student loan lender if you qualify for this deduction.

4. Self Employed Deductions

Self-employed individuals may have a home office. Deductions can be claimed, and there is a simplified and actual expense approach. The deduction will let taxpayers claim the physical space in the home used for work, office supplies, utilities, and more.

Zhanna Ziering is a top-rated tax attorney in New York City for Moore Tax Law Group. She explains that the home office deduction can be detailed in how it is applied. “The home office [deduction] is done by the square footage of what you use. You determine a certain percentage and apply that percentage to certain things, but there could be some exceptions.”

5. Earned Income Tax Credit (EITC)

Taxpayers in the low to moderate tax income bracket may qualify for the Earned Income Tax Credit (EITC). Qualification is based on family size and earned income. Generally, taxpayers with families can benefit from this credit. However, some individuals qualify. Because this credit is not well known, many people who are eligible do not claim it.

6. Child Tax Credit

Parents and caregivers may be able to claim the Child Tax Credit. Not all parents qualify, and their eligible amount can change. Several factors will determine whether you qualify for the tax credit. If you are unsure whether you qualify for this credit, speak with a tax professional or attorney.

Wrongfully Claiming Deductions and Credits

If the IRS determines that you incorrectly claimed a tax credit or deduction for which you are not qualified, it will let you know. You will receive a letter stating the issue with your tax return, the correction the IRS made, and your additional tax liability. In many situations, the IRS recognizes that it was an honest mistake. However, if the IRS suspects fraud, it may pursue criminal tax fraud charges.

Do I File Personal Taxes with My Business Taxes?

Generally, it is good practice to keep your personal and business practices separate. However, there are different rules when filing your taxes. You will file your business taxes on your personal tax return if you have a sole proprietorship or limited liability company (LLC). Even with these small business structures, you should keep your personal and business records separate. When filing your taxes, you will list business-related income and expenses in a Schedule C attachment.

If you have a partnership or corporation, you will need to file business income taxes separately. There is a tax form for each type of business entity, so you will need to choose the correct form for your business type.

What Happens if I Don’t Pay Income Taxes?

The IRS will notice you decide not to pay your taxes. Once the filing deadline passes, you will receive a letter stating the amount you owe, plus additional interest and penalties. This is your chance to correct the error and make your tax payment. Continuing to ignore your tax liability will result in ever-increasing debt. The IRS will take more aggressive collection steps, including tax liens, wage garnishments, and seizing of savings accounts. The IRS offers payment plans if you cannot afford to pay your tax debt.

This also applies to state returns. You must pay your state, county, city, or municipality taxes. These local taxes can also result in increased fees in the form of penalties and interest.

You must also pay your sales tax responsibilities. This payment is made to the state where you owe the tax. If you fail to make this payment, you could owe significant penalties and interest. The state will pursue payment and can place a tax lien on property, assets, and bank accounts.

Tips for Successfully Filing Personal Taxes

There are several things you can do to make your tax filing experience a smoother one. Don’t start filling out your tax forms until you have gathered all your documents. Start collecting your documents early. Even if you are not getting a tax refund, file your taxes. This will start the statute of limitations timer and reduce the risk of you owing more than you already will.

Don’t be afraid to hire professional help to prepare your taxes. While free file options exist, some tax situations are complicated and warrant a professional’s assistance. Ziering highlights the risk of self-filing and the importance of knowing the tax regulations. “There are several avenues for people who self-prepare their tax returns. However, I have seen a lot of issues with self-repaired returns.”

Before you submit your tax return, double-check every line for accuracy. Common places for errors include filing status, social security number, or dollar amounts. Another common place for error is the refund payment information. Check that your bank account information is correct so you aren’t delayed receiving your direct deposit. It is easier to correct these before you file your return. However, you can still fix your return after you file. Submit an amended return with the correct tax information.

Finally, do not ignore the IRS. If you receive a letter of communication, read it and respond promptly. Ignoring the IRS will only make the problem grow progressively more severe.

Do I Need a Lawyer for Filing Personal Taxes?

Most people do not need a tax attorney to file their annual tax return. However, there are some tax situations where a tax attorney can be useful. A tax lawyer can provide valuable guidance on tax law and liability. They can help you negotiate with the IRS on your behalf and advocate for your rights.

Visit the Super Lawyers directory to begin your search for an experienced tax attorney. For more information, read our guides on tax law.