Income Tax Returns Rules
If you are filing your IRS income tax return for the first time, or if you are dealing with a sudden increase in the complexity of your finances due to a dramatic increase in income, you may be concerned about how to go about filing your return. In most cases, however, the mastery of a few basic rules and concepts combined with good record-keeping should keep you out of trouble with the IRS and ensure that you don't overpay your taxes.
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Calculating Your Tax
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The tax calculation process may seem daunting,but it can be broken down into a few simple steps. First, calculate your total income from all sources. Next, deduct the expenses listed in lines 22 to 35 of Form 1040 to arrive at your adjusted gross income (AGI). Third, determine your standard deduction. Then add up your itemized deductions as listed in Schedule A of Form 1040 and subtract whichever number is larger, your itemized deductions or your standard deduction, from your AGI. This is your taxable income. Find your tax bracket from the tax rate schedule in Form 1040, and multiply your taxable income by the applicable rate to arrive at tentative total tax. Then calculate your alternative minimum tax (AMT) from IRS Form 6251. Your total tax is the larger of your tentative total tax and your AMT. Finally, subtract taxes already paid (such as amounts withheld from your paycheck) to arrive at total tax due. If this number is negative, then the IRS owes you a refund.
Record Keeping
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If you were employed during the tax year, then you will need to send copies of your W-2 forms to the IRS along with your tax return. You will also need to retain records, such as receipts, for any deductions and exemptions you are claiming, in case of audit. A good rule of thumb is to keep some evidence of any claim that you make on your tax return that reduces your tax burden.
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Late Filing
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If your tax returned is postmarked by April 15, then your tax return is not late. If you notify the IRS before April 15 that you need an extension, you will be automatically granted six months. If you are still late filing your return, the IRS will assess a penalty of 5 percent of the total tax due for each month that you are late. However, if your tax return is 60 days late or more (calculated by the day the IRS actually receives it, not the day it was mailed), the minimum penalty will increase to either $100 or 100 percent of the total tax due, whichever figure is lower. You can try to convince the IRS that there was "reasonable cause" for your late filing (such as a death in your immediately family or incorrect tax advice from an IRS employee). If you owe no tax with your return (if the IRS owes you a refund, for example), then your penalty will be zero no matter how late you file.
Amending an Incorrect Tax Return
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If you file your tax return and later find that you have made an error, you will need to file IRS Form 1040X. This is a straightforward document that asks for your original calculations, your amended calculations, and an explanation for each change. If you need a copy of your original tax return for this purpose, you can order one from the IRS (see the IRS website in Resources below).
Penalties for Failure to File or Pay
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Failure to file and/or pay your taxes will result in collection action by the IRS at some point. The IRS has broad authority place tax liens on your property (which generally have first priority over other liens), garnish your paycheck, and seize your bank account. You will be liable for total past due taxes, accumulated penalties, and administrative expenses of the IRS collection process. Fortunately, simple failure to file or pay, absent deception, is not normally considered tax evasion and should not subject you to criminal liability.
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