The Internal Revenue Service (IRS) requires that you file an income tax return every year settling your tax responsibilities for the previous financial year. While you may have made estimated payments or your employer may have withheld taxes from your checks, filing a return is necessary to compare what you actually earned with what you paid in taxes.
Many people receive a refund when they file their annual tax return, although some people will have taxes due. Figuring out which paperwork you need to submit is a crucial first step to staying in compliance with your income tax obligations.
Do you know how to file your Form 1040?
Filing with a Form 1040 is common for employed adults
The IRS has specialized forms that apply to various different financial situations.
The average taxpayer will usually need to file a Form 1040. This particular income tax return form applies to those who have a W-2 with their employer and who have earned taxable income as an employee.
Form 1040 allows you to balance your estimated tax withholdings with your end-of-year liability. Everything from your home ownership status to the number of children that you have will influence your income tax responsibilities when filing using Form 1040. There are various versions of this form available for employees in different financial situations.
Those with self-employment or business income will use Form 1099 (Schedule C)
If you are an independent contractor, not an employee, then you will need to use a Schedule C to file your taxes. The same is true of those who operate their own small business.
If you are self-employed, the owner and operator of a small business, or a professional classified as an independent contractor, then a Schedule C will likely be the right form for you. In addition to filing your annual return, for every year you earn independent contractor income you will need to submit estimated quarterly tax payments.
Understanding what tax forms you must submit and what responsibilities fall to you based on your employment situation can help you fulfill your income tax filing obligations.