Taxes 101: Understanding the basics of filing your taxes
Filing taxes can feel overwhelming, especially if you're new to the process. Learn the basics of why we pay taxes, how to prepare for tax season, and what to expect during and after filing.
Key takeaways
Understand which taxes apply to you. Most individuals deal with income, sales, property, and payroll taxes, each serving different purposes.
Know when and how to file. Federal returns are typically due April 15, and missing the deadline can result in penalties if you owe taxes.
Gather key forms and documents. W-2s, 1099s, and records of deductions or credits are essential for accurate filing.
Explore deductions and credits. These can significantly lower your tax bill or boost your refund, depending on your eligibility.
Get help if you need it. From free IRS programs to professional tax preparers, there are resources for all income levels and situations.
Filing your taxes can feel confusing or overwhelming, especially if you’re new to the process. But taking it one step at a time will help you complete your taxes with confidence.
Let’s start with the basics. Why do we have to pay taxes? Taxes pay for schools, hospitals, roads, the military, and many other essential services. Taxes can be collected by the federal, state, or local government.
There are several types of taxes, but here are the most common for individual taxpayers:
Income tax is a tax on the money you earn through work, investments, or other sources.
Sales tax is added to the price of goods and services at the time of purchase.
Property tax is collected on real estate you own, such as your home or land.
Payroll tax is automatically deducted from your paycheck to finance social insurance programs, including Social Security, Medicare, and unemployment insurance.
But when most people think about paying taxes, we think about the federal individual income tax return that’s generally due April 15 of each year. And filing that form causes uncertainty and stress for almost everyone. So whether you don’t know where to start to complete your return or you need a refresher, here are answers to frequently asked questions about filing a tax return.
Do I need to file taxes?
If you’re employed, self-employed, or have other sources of income, you most likely need to file taxes. Not filing your taxes can result in penalties and interest fees.
When you earn income, taxes are often withheld automatically from your paycheck. This is called tax withholding, and it’s the money your employer sends to the government on your behalf. The idea is to spread out your tax payments throughout the year so you’re not hit with a massive bill when you file.
Filing a tax return helps the government determine if you’ve paid enough taxes throughout the year. And if too much money was withheld from your paychecks during the year, filing lets the government know to pay you back.
Whether you need to file depends on how much money you earn and your filing status (single, married, or head of household). Check IRS guidelines for more information. Even if you think you don’t you owe anything, you might be missing out on credits or deductions that could save you money or help you get a bigger refund.
What’s the tax deadline, and what happens if I miss it?
The IRS deadline to file your return is usually April 15, unless you request an extension. The deadline to file state taxes vary by state, and some states have no personal income taxes so there are no due dates to consider.
If you miss the deadline and owe taxes, the IRS may charge you penalties and interest. However, if you’re owed a refund, there’s no penalty for filing late, but you should file as soon as possible.
If you think you won’t meet the deadline, you can file for an extension by April 15, which gives you until October 15 to submit your return. Make sure you pay any tax you owe by the April filing date. The extension is only for filing your return. Keep in mind, some taxpayers automatically qualify for extra time to file.
What do I need to file taxes?
Before you sit down to file, it’s helpful to gather forms and information you’ll need.
Tax form checklist
W-2 Form from your employer, if you’re employed. It details how much you earned and how much was withheld for federal and state taxes.
1099 Forms for other types of income, including freelance or gig work or interest from a bank account.
Records of any deductions or credits you’re claiming, such as student loan interest, education expenses, or medical bills.
A copy of last year’s tax return can be helpful for reference.
Can I reduce how much I pay?
Yes, there are ways to reduce your taxable income. The tax system allows for deductions and credits to help lower the amount you owe.
Tax deductions lower the amount of income that’s taxed. For example, if you’re a teacher, you may be able to deduct the cost of classroom supplies. Another common deduction is the standard deduction, which varies by filing status. For single filers in 2024, it’s $14,600.
Tax credits reduce the actual amount of taxes you owe. For example, the Child Tax Credit offers up to $2,000 per qualifying child. Unlike deductions, credits directly cut your tax bill dollar-for-dollar.
What happens after I file my tax return?
Once you’ve filed your taxes, your return is processed by the IRS and/or your state tax agency. If you’re owed a refund, they’ll issue it, either by direct deposit or paper check, usually within 21 days.
If you owe money, you’ll need to make your payment by the due date. The IRS offers several payment plans if you can’t pay in full.
It’s also important to keep a copy of your tax return and any supporting documents for at least three years. You’ll need them if you’re audited or want to reference them for future filings.
Where can I find tax help?
The good news? Nobody has to figure out filing taxes on their own. If you need assistance, here are some options:
Tax software programs such as TurboTax and H&R Block guide you through the filing process step by step.
Volunteer Income Tax Assistance (VITA) offers free tax help to people making $67,000 or less, those with disabilities, or those who speak limited English.
Tax Counseling for the Elderly (TCE) offers free tax assistance for those who are 60 years of age and older and specializes in questions about pensions and retirement-related issues.
Help from an IRS trusted partner may be available to you, depending on your age, income, military status, and other factors.
A tax professional can be helpful if your finances are more complex. If you’re self-employed or own rental property, for example, hiring an accountant or tax professional might be worth it.
IRS.gov website has tools, tips, and answers to common questions to help with filing.
How do taxes affect me?
Understanding tax basics also helps you see their impact on daily life and bigger goals. For instance, sales tax is added to most items you buy, so you’re paying taxes with nearly every purchase. And if you own real estate, you’re familiar with property taxes, which fund schools and local services.
Income taxes, on the other hand, affect your earnings and long-term decisions such as saving for retirement. For example, contributions to certain retirement accounts, including a 401(k) or IRA, can reduce your taxable income today and grow tax-deferred for the future.
Taxes don’t have to be overwhelming. Becoming familiar with tax basics can help you better understand your responsibilities and discover opportunities to save money. Whether you’re filing for the first time or brushing up on the process, a little planning and preparation can go a long way.