Unless it is your dream to face a panel of long-nosed IRS agents or lose more money then you have, learning the basics of how to prepare and file your income taxes is important if a person wants to stay out of trouble.
First, to simplify the process of how income taxation works, when a person's income taxes is withheld from their paycheck every pay period, those taxes are actually estimations of what a person will own the government for that given year. When April 15 comes around what is really happening is the settling of your 'bill' with the IRS.
The majority of people get too much of their money withheld from them because of their inaccurate filing. One of the easiest ways to fix this problem is to make sure that your filing status (married or single) is accurate and that the number of withholding allowances claimed on your W-4 form with your employer is updated regularly.
A person needs to file a new W-4 with their employer if they have one of the following situations: they got married or divorced, had a child or can no longer claim a dependent that they claimed the previous year, got an enormous refund/exemption last year, and/or they owed over $100 dollars to the government when they had filed their tax return the previous year.
There are three different types of US Individual Income Tax Return Form 1040: Form 1040EZ, Form 1040A, and Form 1040. Form 1040EZ is the simplest of the forms and only for those people who are under the age of sixty-five with no dependents, have no more than $1,500 of taxable interest income, has no advance earned income tax credit (EITC), and that their taxable income from line six is less than $100,000. Form 1040 is a little harder to complete because it is based on certain tax credits and income based on capital gains, IRAs, and taxable scholarship and fellowship grants. Form 1040, which is the longest of the forms, is what the majority of tax payers' use.
If a person is not updated with their information, they could end up having far too much of their hard-earned money withheld from them by the government. In essence, they allow the IRS to borrow their money at an interest-free rate all the year around. So, if you want to pay as less of your taxes as possible make sure that your filing status is accurate and that the information on your W-4 is updated - it could mean the different between saving the money you keep or losing everything you have.