Loading the player...

What is 'Tax Return'

A tax return is the tax form or forms used to report income and file income taxes with tax authorities such as the Internal Revenue Service (IRS) in the United States. Tax returns allow taxpayers to calculate their tax liability and remit payments or request refunds, as the case may be. In most countries, tax returns must be filed every year for an individual or business that received income during the year, whether through wages, interest, dividends, capital gains or other profits.

BREAKING DOWN 'Tax Return'

In the U.S., individuals use Form 1040, corporations use Form 1120, and partnerships use Form 1065 to file their annual returns, while investment income is recorded on Form 1099.

Typically, a tax return begins with an identification section and is then divided into three main sections: income, deductions and credits. The return itself is only a few pages long, but depending on the type of income declared or the credits and deductions requested, there can be several schedules that need to be added on.

Income

In this part of the return, the person preparing it must indicate all forms of income received during the year from all sources. Salaries, dividends, royalties and, in many countries, capital gains must be reported.

Deductions

Taxpayers will then be entitled to various deductions. These vary greatly from jurisdiction to jurisdiction, but typical examples include contributions to retirement savings plans, alimony paid and interest deductions on certain loans. For businesses, all expenses incurred in order to conduct the business is deductible.

At this point in the return, the taxpayer will be able to determine his taxable income and tax payable.

Credits

The next section of the return deals with any tax credits that the taxpayer may be entitled to. Again, these vary greatly from jurisdiction to jurisdiction, but there are often credits attributed for dependent children, old age pensions, education and many more. The total credits are subtracted from the taxpayer's tax payable.

The end of the return is used to calculate if the taxpayer has an amount to pay or is entitled to a refund. Most salaried employees have taxes withheld at source on each pay, so they may be entitled to a refund if too much tax has been withheld during the year. Similarly, corporations and individuals in business may make quarterly advance payment to keep their tax balance running as close to $0 as possible and avoid oversized tax bills at the end of the year.

RELATED TERMS
  1. Income Tax

    A tax that governments impose on financial income generated by ...
  2. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  3. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  4. Tax Base

    The assessed value of a set of assets, investments or income ...
  5. IRS Publication 514

    A document published by the Internal Revenue Service that provides ...
  6. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
Related Articles
  1. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  2. Taxes

    Explaining Tax Returns

    A tax return is the form or forms used to file income taxes with the IRS.
  3. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  4. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  5. Taxes

    Next Season, File Taxes On Your Own

    Master these fundamentals and you'll be doing your own taxes with minimal stress.
  6. Taxes

    Tax Credits That Can Get You a Refund

    Here are a few of the credits that may result in a refund check, even if you owe no taxes this year.
  7. Taxes

    Inaccurate Tax Return, Now What?

    If the IRS finds errors, it will cost you. Find out how to fix them, and how to prevent them in the first place.
  8. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  9. Taxes

    Federal Tax Brackets

    Why do we have income tax brackets? What do they do for us? Read this to understand the basics and where to find your own bracket.
  10. Taxes

    New Tax Rules Target The Top Tax Bracket

    The American Taxpayer Relief Act brings about new tax rules for the wealthy that people such as Warren Buffett have been calling for over the last few years.
RELATED FAQS
  1. Do I need to file an income tax return every year?

    Understand if a person needs to file a tax return every year. Learn the benefits of filing a yearly income tax return even ... Read Answer >>
  2. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  3. What is the difference between federal and state withholding tax?

    Discover whether you can file your taxes by yourself. The three main options for tax preparation are a tax professional, ... Read Answer >>
  4. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  5. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center