April 15th is Tax Day for most individuals and families because it is the day when tax returns must be postmarked or filed electronically by midnight. Alternatively, taxpayers may file for an extension to October 15th, allowing them six more months to file their paperwork. This extension request, along with all of their taxes due, must be mailed or submitted electronically by midnight on April 15th. Paper tax forms are available in many public libraries and other community locations, and printable versions are available online.

Taxpayers must report their income from all sources, such as salaries, wages, dividend and interest income, pensions, and alimony. This income is reported on either the 1040EZ, 1040A, or 1040 form. To choose the correct form, taxpayers must first determine their filing status, their taxable income, and whether they will claim the standard deduction or itemize their deductions. The 2020 standard deduction for individuals is $12,400 for individuals and $24,800 for married couples. Taxpayers whose total deductions are greater than the standard deduction, including many people who pay interest on a home mortgage, make large charitable contributions, pay real estate taxes, or pay college tuition, will see a greater reduction in their tax burden if they itemize their deductions.

The 1040-EZ form is the quickest (and simplest) tax form you could fill out but doesn’t allow for many tax breaks or deductions. Consider using the 1040-EZ form if you:

  • Have taxable income less than $100,000
  • Are younger than 65
  • Have taxable interest income less than $1,500
  • Don’t have any income from self-employment, alimony, dividends, or capital gains
  • Don’t want to itemize your deductions
  • Are not legally blind
  • Are not bankrupt

The 1040A form is slightly more complex than the 1040-EZ form but allows for more tax breaks. Consider using the 1040A form if you:

  • Have taxable income less than $100,000
  • Don’t want to itemize your deductions
  • Don’t have an alternative minimum tax adjustment
  • Your only adjustments to income include any of the following:
    • Deductions for an IRA
    • Student loan interest
    • Educator expenses
    • Tuition and fees

For more information on the forms, visit irs.gov or see supplemental information here.

Before beginning to prepare your taxes or before meeting with a tax preparer, you should gather records that document their sources of income and deductions. These records include wage and income documents such as the W-2 form (for employees), the 1099 (the 1099-S for independent contractors or freelance workers; the 1099-SSA for social security recipients; the 1099-DIV or 1099-INT for recipients of interest income, dividend income, or capital gains or losses; and the 1099-R for the recipients of distributions from annuities, pensions, IRAs, and other retirement plans), and the 102-S (for students: a statement of any taxable grants, scholarships, or fellowships from institutions of higher education).

Common tax deductions include medical and dental expenses (expenses over 7.5 percent of the taxpayer's adjusted gross income qualify as a deduction), real estate and personal property taxes, state and local income taxes, interest on a mortgage or home equity loan, interest on a student loan, charitable donations, employment expenses (such as union dues or uniform costs), and expenses incurred while finding a new job (such as travel to interviews). Commonly overlooked deductions include the purchase of a hybrid car, the donation of a car to charity, losses from natural disasters, driving expenses related to charitable activities, and expenses incurred during charitable activities (such as the cost of ingredients for a casserole donated to a soup kitchen).

After gathering documentation for all income and deductions, taxpayers must decide how to file their taxes. Taxpayers may file their own taxes on paper or electronically, or they may have their tax returns prepared for them by a tax preparer at a tax center. The IRS estimates that two-thirds of taxpayers choose to file their tax returns electronically. While the IRS does not offer electronic filing software or programs directly, taxpayers may purchase tax preparation software, download software, or use online tax preparation programs in order to file electronically.

There are online tax preparation programs that allow qualifying taxpayers, those with an adjusted gross income of $57,000 or less, to prepare and file their taxes for free. Other taxpayers may use tax preparation software or sites for a fee. Most of these programs employ a Q-and-A format that makes it easier for taxpayers to determine whether they qualify for deductions and credits. The programs also offer FAQ sections and explain tax terms, and some allow taxpayers to import information directly from employers and banks to save time and reduce transcription errors. Some programs let users ask a tax professional a certain number of questions as part of the service, or for an additional cost. Taxpayers who file their returns electronically receive their refunds in half the time it takes for those who file paper returns to receive them.

Taxpayers who employ tax professionals or a tax-filing center may benefit from face-to-face interaction with a trained, experienced tax preparation professional who is up-to-date on tax laws. Many centers match clients with tax preparers whose expertise fits the clients' individual situation. Tax preparers try to find every possible deduction and credit their clients may be eligible for, and help clients in complicated situations manage their returns, payments, and tax planning.

Taxpayers using tax preparation centers do risk falling victim to scams, fraudulent returns, and poorly trained tax preparers. Each taxpayer is responsible for the tax returns filed under his or her name—even if someone else prepared them—and is responsible for fraudulent, incomplete, or incorrect returns. To minimize these risks, taxpayers should look for reputable tax centers that operate year-round, that employ credentialed tax preparers associated with professional organizations, and that hold their members to an ethical code. Tax preparers should sign the return and provide a copy to the taxpayer.

Taxpayers who do not pay their entire tax balance on time face penalties. Interest accrues on the unpaid tax, which may increase the amount due by over 25 percent. If a taxpayer does not file taxes on time, the IRS files a substitute return. This return does not include exemptions, credits, and deductions. To collect unpaid taxes, the IRS may also ask the taxpayer to sell or mortgage property and assets or to apply for a bank loan. If none of these steps result in full payment of the taxes due, the IRS may seize wages, place a levy on bank accounts, or file a federal tax lien on the delinquent taxpayer's property. Failure to file a tax return may also affect the taxpayer's credit rating and ability to apply for loans or for federal higher education aid. Taxpayers may choose to pay their tax bill through an installment plan, but this will not stop the accrual of interest and penalties on the unpaid amount.

The data provided in this article is intended for illustrative purposes only, and its accuracy is not guaranteed. Crest Capital and its affiliates are not tax advisers. Please consult with qualified professionals concerning your specific situation.

About the Author

Adrian Ludwig is a senior account executive at Crest Capital, where he captures incremental online sales typically lost by standard vendor finance programs. Adrian works in nearly every industry vertical, providing leases andloans for equipment, vehicles, and software. Check out his most popular piece: The Difference Between Good Debt and Bad Debt.