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Tax Returns
Tax returns are the reports filed with the Internal Revenue Service (IRS), (as well as state and local collection agencies) each year, detailing your personal financial earnings, which are then used to calculate the taxes you owe. Taxes owed to the government or state, get calculated on official forms from the IRS or other certified collection institutions. The most common tax return form is Form 1040, used by most individuals, however there is also Form 1120, used mainly by corporations, Form 1065, used by partnerships, and a variety of other forms used to calculate taxes owed by different households or businesses.
Often going hand in hand with tax returns are information returns. Information returns are forms used to further illustrate what sort of income someone is receiving. The most well-known information returns are Form W-2 and Form 1099, which employers, brokers or independent contractors use to report the income they are paying their employees. By filing information returns, employers can provide a record of their paid income, (or other applicable monies not necessarily listed as income,) which the IRS can then use as a comparison to ensure that you are reporting income on our own tax return accurately.
More often than not, people refer to the expected refund on over-paid taxes as their “tax return.” However this terminology is completely incorrect. The money you receive back from taxes you’ve over-paid is known as a “tax refund.” (And if there is one financial term in all the world to know, it’s that one.)
As stated, tax returns are generally done at both the federal and state level. Federal income tax returns get listed on documents like the aforementioned Form 1040, but can also be listed on Forms 1040EZ and 1040A, depending on your living situation. Federal tax returns are applicable to all U.S. citizens who earn gross income over a specified amount, which is adjusted annually to compensate for inflation. What it interesting to note is that the gross income owed on a federal tax return is not limited to income earned from legitimate businesses. Income earned from the sale of illegal goods or drugs is taxable, for example. In fact, many major criminals (Al Capone) have been indicted not for felonious crimes, but for failing to pay taxes on their illegal earnings. Hilariously enough, it is perfectly legal for you to file a “Fifth Amendment” return if you want to report your income accurately and pay the corresponding taxes, without revealing the source of your income for fear of self-incrimination! Only in America.
Should you ever discover that you made a mistake on your federal tax return, or didn’t report your gross income accurately, fear not. You can always request Form 1040X, used to file any corrections you need to make with your tax return.
State income taxes, on the other hand, vary from state to state—except in Alaska, Nevada, Florida, South Dakota, Texas, Washington and Wyoming, which impose no income tax. New Hampshire and Tennessee opt to limit their income taxes to dividends and interest income only. As of 2007, California had the highest state income tax, a maximum rate of 10.3%. Income taxes collected at the state level are used to fund state-provided services, such as road repair or public schooling.
Topics: Taxes |
