Takeaways
- Most U.S. citizens must file either federal or state income tax returns.
- The IRS stipulates requirements for income thresholds and filing minimums.
- Planning your tax strategy can save you money by maximizing deductions.
- Online tax filing software can assist in securing refunds and meeting deadlines.
- Three main tax preparation methods include personally preparing your taxes, utilizing tax preparation software, or hiring a tax professional.
Despite the number of times you have filed your taxes, tax season can create tension and anxiety. The accuracy of getting everything just right can be too much for some people. There is even a term for this, dubbed tax anxiety.
Tax anxiety can be triggered by the complexities of tax laws, dealing with tax audits, potential tax liabilities, and dealing with the Internal Revenue Service generally.
Whether you decide to file your taxes with one of the best online tax filing software, file taxes on your own, or hire a tax professional to help through this process. With methodical planning and clear steps to follow, you can file your taxes confidently.
Understanding Federal and State Income Taxes
Before you begin filing your taxes, it is essential to understand the nuances of federal and state income taxes.
- Federal Income Tax is imposed by the U.S. federal government on your taxable income, utilizing a progressive tax system where higher earnings incur higher tax rates. (Read more about the 2024 and 2025 Federal Income Tax Rate and Tax Brackets).
- State Income Tax is enforced by state governments. Each state has its distinct rates, structures, and tax nuances. Some taxes, like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, don't charge income taxes. (Read about how lower taxes increase your discretionary income).
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7 Steps to File Your Taxes
If you want to streamline filing your taxes, here are seven steps to smooth the process and make tax filing easier:
1. Determine if You Need to File
The first step in filing your taxes is to assess whether you are obligated to file a tax return. The Internal Revenue Service establishes minimum income thresholds for filing.
For 2024, the minimum gross income requirements for filing taxes were:
- $14,600 for Single Filers
- $21,000 for Head of Household
- $29,200 Married filing jointly
The IRS also requires those who are self-employed and made over $400 to file, and there are other unique situations that require you to file a tax report as well.[1]
Even if you don't anticipate owing taxes, filing a return could be beneficial because you may qualify for a tax refund, which means more money in your pocket.
Read More: 9 Ways to Use Your Tax Refund
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2. Review Tax Filing Deadlines
Adhering to tax filing deadlines is paramount to avoid penalties and interest charges. Most taxpayers' standard filing deadline falls on April 15 of the subsequent year. For example, the tax filing deadline for the tax year 2024 will be Tuesday, April 15, 2025.
Read Also: Here's How to Choose Your Tax Filing Status for 2024-2025
Of course, exceptions and extensions may apply in unusual circumstances. Always consult the IRS website for up-to-date deadlines stipulated by the Internal Revenue Service and state and local government requirements.
3. Understand Tax Brackets
The U.S. federal income tax system is a progressive system. A progressive tax system stair steps the amount of income owed to the government based on earnings. Higher-income earners pay more in income taxes than lower-income earners.
You need to assess what tax bracket you fall into. These brackets segment taxable income into ranges, each associated with a specific tax rate. Depending on your income, you might be straddling the border of a tax bracket. This is where tax strategies, like contributing to your 401(k) plan, can help reduce your tax burden.
Start Now: 9 Last-Minute Ways to Lower Your Taxes
Part of a smart financial plan involves determining your current tax bracket and estimating your potential tax liability. For example, if you calculate that you will owe taxes, you can save your taxes in a high-yield savings account or adjust your paycheck deductions to reduce the future payment burden.
4. Gather Your Tax Documents
Now that you know whether you need to file and when to file and have determined your tax bracket, you can start preparing more granularly by gathering all necessary documents to ensure accurate tax reporting.
Tax documents provide essential information about your income, expenses, and potential deductions or credits. Here’s a detailed breakdown of what you need to collect:
- W-2 Forms: If you work for a company, your employer provides these forms and details your earnings and any taxes withheld throughout the year. Ensure you have a W-2 from each employer you worked for during the tax year. (Read more about Form W-2).
- 1099 Forms: If you earned income from sources other than traditional employment, such as freelance work, contract jobs, or investments, you would receive 1099 forms. These forms outline the income you earned from each source, which is crucial for accurately reporting all sources of revenue to the IRS. (Read more about Form 1099).
Note: If you sold stocks or bonds and have capital gains or losses to report, you need to report on Form 1099-B or an equivalent statement.[2] Your online stock brokerage account will provide you with forms during tax season.
- Receipts for Deductible Expenses: One major decision during tax filing season is whether you plan on using standard or itemized deductions. Many tax filers use the standard deduction for its simplicity and size.
Here are the standard deductions for the tax year 2024:[3]
-
- $14,600 for Single Filers
- $21,900 for Head of Household
- $29,200 Married filing jointly
Some taxpayers might decide to itemize deductions instead. If you take this approach, you need to meticulously track receipts and documentation for deductible expenses. Deductible expenses include costs such as medical bills, charitable contributions, mortgage interest payments, and property taxes paid.
- Proof of Tax Credits Eligibility: A tax credit reduces your tax liability dollar for dollar. Gather documentation supporting your eligibility if you believe you qualify for any tax credits. Tax credits can significantly reduce your tax liability, so ensuring proper documentation is essential to claim them correctly.
Common tax credits include eligible contributions to an Individual Retirement Account or employer-sponsored retirement plan. (Read about the differences between a Roth IRA and a Traditional IRA.)
- Additional Income Statements: Depending on your income sources, you may receive other income statements or financial documents relevant to your tax return. Examples include state tax refunds, unemployment income, or Social Security benefits.
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Organizing these documents before you start the filing process will streamline and reduce the likelihood of errors or omissions. Pick a safe place to store all these essential documents, physically or digitally, to facilitate easy access when preparing your tax return.
If you need help determining which documents you need, refer to the IRS guidelines, consult a financial advisor, or talk to a tax professional for personalized advice. Everyone's financial situation differs, so get tailored consultations for your tax situation. The best online tax filing software offers video consults with Certified Public Accountants and tax professionals.
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5. Choose Your Method of Filing
The Internal Revenue Service processes millions of tax returns each year. To facilitate this massive processing, they grant U.S. taxpayers multiple filing methods based on what is easier and more convenient for the taxpayer. Here are several common filing methods to consider.
- Paper Forms: You can download and print the necessary forms from the IRS website to fill out tax forms manually. Once you complete the forms, you can mail your forms to the IRS. Where you mail your form varies by state.
- Tax Software: A popular alternative to filing tax forms manually is to choose one of the best online tax software programs. These user-friendly software services are designed to guide you through the filing process, optimizing deductions and credits, and help you pay your taxes.
Depending on the complexity of your tax situation, you can find free tax filing software and fee-based versions.
- Tax Professional: For highly complex tax situations, there might be a more sophisticated solution than filing taxes yourself or with the assistance of an online platform. If you find yourself in this situation, consulting with a tax professional might be best.
The smart solution might be hiring a Certified Public Accountant or tax lawyer with extensive education in the intricacies of tax code, knowledge about filing requirements, and years of professional experience. Consider exploring this option for handling ultra-intricate tax scenarios or self-employment income to help ensure accuracy and compliance.
6. Calculate Your Tax Obligation
Regardless of how you file your taxes, part of the process is calculating your tax liability. Tax software simplifies this process by automatically calculating your Refund or Amount You Owe. This automation is extremely useful for filers with more routine tax scenarios.
Alternatively, if you hire a tax professional to assist you with filing your taxes, they calculate your tax liability. If you opt for self-filing with paper tax documents, you must meticulously read the instructions and follow the detailed instructions to accurately determine your tax obligation.
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7. Submit Your Tax Returns to the IRS
Once you have completed your tax return, the final step is to submit it to the IRS. You can mail your completed paper return or submit it electronically with e-filing. In general, e-filing is the preferred method of submission. You can find detailed instructions for both submission options on the IRS website.
After you file your tax return, you can check the status of both your federal and state tax returns.
The IRS’s “Where’s My Refund Tool” to help filers follow their refund online. Here’s what you need for checking your refund status:
- Social Security Number or Individual Taxpayer Identification number
- Exact Amount of Your Refund (Whole Dollar)
Don't want to check your refund status online? That is no problem because you can simply contact the IRS to check the status of your tax refund via their automated phone system, although this process might take longer than checking it online.[4]
Smart Summary
Tax season will provide enough variables for you to worry about. By following this step-by-step guide, you can confidently approach filing your taxes. Explore the best online tax software and the IRS website because it has many great resources. Getting ahead of the tax season by preparing a financial plan with a financial advisor or robo-advisor is a smart money move. By preparing yourself ahead of time, you can file quickly and confidently.
Frequently Asked Questions
You can put these funds in a high-yield savings account if you believe you must pay more or owe federal or state taxes. Stashing your cash here will let you earn interest on your savings, which you can use for other purposes.
Many great online tax software programs can help you file taxes for free or with limited fees. Some of these programs offer live CPAs for Q&A, tailored advice services, and quick turnaround times. Here are Smart Money’s picks for the best online tax software.
The tax filing deadline for 2024 is April 15, 2025. Get a jump on your taxes by getting your documents prepared, choosing an online software, and filing your taxes well ahead of time
(1) Internal Revenue Service. Here’s who needs to file a tax return in 2024. Last Assessed January 14, 2025.
(2) Internal Revenue Service. IRS Fact Sheet Reporting Capital Gains. Last Assessed January 14, 2025.
(3) Internal Revenue Service. IRS provides tax inflation adjustments for tax year 2024. Last Assessed January 14, 2025.
(4) USA. Gov. Check your federal or state refund status. Last Assessed January 14, 2025.
