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Tax returns in the United States are reports filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency containing information used to calculate income tax or other taxes. Tax returns are generally prepared using forms prescribed by the IRS or other applicable taxing authority. The federal government of the United States imposes a progressive tax on the taxable income of individuals, partnerships, companies, corporations, trusts, decedents' estates, and certain bankruptcy estates. Some state and municipal governments also impose income taxes. The government's revenue comes mostly from Federal Tax Returns. The government uses the proceeds to fund different needs that benefit the country and its people.
U.S. citizens and residents who realize gross income in excess of a specified amount (decides by IRS) are required by law to file Federal Income Tax Return. Federal taxable income is the difference of income that you earned and any exemptions plus deductions plus adjustments. The amount of federal taxes that you pay depends upon a number of factors like the gross amount of your salary, other incomes (e.g. bank interests, stock dividend) the filing status (like single, married, household) and the number of dependents (children, parents) etc. Federal Income Tax is due on most types of income, including wages and salaries, pensions, bonuses, commissions, business income, dividends, interest, capital gains, rent and royalties.
- The main channels for payment of Federal Income Tax are:
- For employees, withholding tax deducted from income by their employers;
- For self-employed people, 3-monthly payments of estimated tax;
- For non-working people with sufficient earnings, 3-monthly payments of estimated tax
There are many possible deductions from gross income which reduce the amount of taxable income on which tax is calculated during Federal Tax Return preparation. Employees give their employers information about their deductions using Form W-4. Here is a wide variety of possible tax deductions, including (according to circumstances) education expenses, home mortgage interest, student loan interest, IRA deduction, educator expenses, moving expenses, alimony paid, job expenses and tax preparation fees. Possible tax credits include child and dependent care credit, child tax credit, additional child tax credit, education credits, lifetime learning credits, earned income credit, retirement savings contribution credit, and elderly credit. There are many other deductions and credits.
The annual tax return form that must be filed by all taxpayers as individuals is the 1040; there are some different versions of it. The Form 1040, U.S. Individual Income Tax Return, is the starting form for personal (individual) Federal Tax Returns filed with the Internal Revenue Service (IRS) in the United States. Versions 1040EZ and 1040A can be used only by those with taxable income under US$100,000. The EZ form can be used subject to a number of conditions, some of which are: filing status is "married filing jointly" or "single"; no dependents are claimed; no adjustments to income are made; the only tax credit claimed is the earned income credit.
The 1040 form also has a number of schedules, which may need to be completed, e.g. Schedule D for capital gains, Schedule E for rental real estate income, royalty income and S Corporation income, and Schedule A for deductible taxes medical expenses.
