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 In casual conversation, the term tax return is used rather loosely for two related, but different subjects. When some people talk about tax returns, they are really talking about filling out a tax form. Other folks use the phrase tax return to talk about their refund. So as not to play favorites, we'll talk about both in this article.
Filling out a Tax Return
We tried to come up with a rule of thumb that taxpayers could use to find out if they had to fill out a tax return. Guess what, it take the IRS a nearly two pages of instructions to figure that one out. That being said, here are the three rules of thumb to help you figure out if you might have to file a tax return in 2008 for money earned in 2007:
- If your gross income was more than $3,400 and you are not claimed as a dependent on another's tax return, then you may have to fill out a return.
- If you are claimed as a dependent on someone else's form and your unearned income was greater than $850, then you might have to file a return.
- If you are claimed as a dependent on someone else's form and your earned income is $5,350 or more, then you might have to file a return.
Gross income is merely the sum or your earned income (such as wages) plus your unearned income (interest income). Pages 18 and 19 of the form 1040 instructions have a much more detailed approach to figuring this out. Our suggestion is that if you are close to these thresholds, you should take a look at the instructions and see if you need to file a tax return.
If you're a college student and your employer withheld federal income tax, you may have overpaid and are entitled to a tax refund. Form 1040 EZ is pretty simple to fill out and worth the effort if you're entitled to get some money back from the government.
Tax Return Deadline
If you have to file a return, then the only other issue you need to be concerned with is the tax return deadline. Here is one rule that the IRS made very simple - tax returns are always due on April 15th. (In 2008, April 15th is a Tuesday). But what happens if you cannot make the April 15th deadline? Then you can file for an extension!
Filing for an Income Tax Extension
You're entitled to an automatic six month extension if you inform the IRS either by phone or by completing a form 4868 no later than April 15th. This does not mean that you can wait until August 15th to pay any income taxes you owe the government. The extension only applies to the filing of the tax return itself. If you owe the government taxes, then they expect to be paid. Interest charges will start to accrue on any taxes due starting on April 15th.
If you're in the military and on duty outside of the United State or if you are a civilian that lives outside the United States and your main place of business is outside of the U.S., then you may qualify for an automatic two month filing extension without filing a form 4868.
Form 1040
Now that you've figured out if you have to file and when you have to file a return, the next logical question is - What form do I have to file? The IRS is extremely sensitive to the time it takes to fill out all these tax forms. As a matter of fact, the tax instructions usually contain an estimate of the time necessary to fill out each form.
The rule of thumb for form 1040 is to keep it simple. Unless you think that you are entitled to certain tax deductions, then you want to use the shortest form possible. The three possibilities include:
Form 1040EZ
The easiest of the three tax returns to complete and this is the form most college student or summer help would typically use. If you have interest income that is less than $1,500, zero dependents, taxable income less than $100,000 and you are under the age of 65, then this is probably the best form for you.
Form 1040A
This form is a little more detailed than form 1040EZ. You can claim deductions for student loan interest expenses, IRA contributions and some other higher education expenses. You can also claim a tax credit for items such as childcare, earned income, and education.
You cannot itemize deductions with this form and your taxable income must be less than $100,000. You can have a capital gain distribution, but you cannot claim a capital gain or loss. If the forms 1040EZ or 1040A are not suited to your situation, then your tax return should be filled out using the form 1040 or the long form.
Tax Refunds
After you've filled out your tax return, you've either got good news or bad. The bad news is when you have to write out a check to the IRS because you owe taxes. The good new is when you're entitled to a tax refund. This leads us to a little tip for tax returns:
Consider filling out your tax forms as early as possible after the first of the year. Even it this is just an estimate, you should try to get an idea if you owe money or are entitled to a refund.
If you think that you're getting a refund, then fill out your tax return as soon as possible, this way you get your tax refund sooner. If you think you are going to owe additional income taxes, then you may want to wait until you're closer to the April 15th deadline before sending in your return.
In the good old days, the earlier you filed, the faster you would get your return. Today's age of electronic tax filing has really changed all that. You can opt for electronic funds transfer directly into your bank account or get a check in the mail - it all comes back to you pretty quickly today.
Tax Refund Status
Probably the best innovation we've seen from the IRS in recent years is their system that allows you to check on the status of your tax refund. You can find out exactly where your refund is simply by visiting the IRS website. The only information you need is your Social Security number, your filing status and the refund amount.
Good service from IRS - hey, at least they're doing something useful with our tax dollars!
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