Tax Return

What Is a Tax Return?

A tax return is a form or forms filed with a tax authority that reports income, expenses, and other pertinent tax information. Tax returns allow taxpayers to calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes. In most countries, tax returns must be filed annually for an individual or business with reportable income, including wages, interest, dividends, capital gains, or other profits.

Key Takeaways

  • A tax return is a documentation filed with a tax authority that reports income, expenses, and other relevant financial information.
  • On tax returns, taxpayers calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes.
  • In most places, tax returns must be filed annually.

Understanding Tax Returns

In the United States, tax returns are filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency (Massachusetts Department of Revenue, for example) containing information used to calculate taxes. Tax returns are generally prepared using forms prescribed by the IRS or other relevant authority.

In the U.S., individuals use variations of the Internal Revenue System's Form 1040 to file federal income taxes. Corporations will use Form 1120 and partnerships will use Form 1065 to file their annual returns. A variety of 1099 forms are used to report income from non-employment-related sources. Application for automatic extension of time to file U.S. individual income tax return is through Form 4868.

Typically, a tax return begins with the taxpayer providing personal information, which includes their filing status, and dependent information. 

The Sections of a Tax Return

In general, tax returns have three major sections where you can report your income, and determine deductions and tax credits for which you are eligible:

Income

The income section of a tax return lists all sources of income. The most common method of reporting is a W-2 form. Wages, dividends, self-employment income, royalties and, in many countries, capital gains must also be reported.

Deductions

Deductions decrease tax liability. Tax deductions vary considerably among jurisdictions, but typical examples include contributions to retirement savings plans, alimony paid, and interest deductions on some loans. For businesses, most expenses directly related to business operations are deductible. Taxpayers may itemize deductions or use the standard deduction for their filing status. Once the subtraction of all deductions is complete, the taxpayer can determine their tax rate on their adjusted gross income (AGI).

Tax Credits

Tax credits are amounts that offset tax liabilities or the taxes owed. Like deductions, these vary widely among jurisdictions. However, there are often credits attributed to the care of dependent children and seniors, pensions, education, and many more.

After reporting income, deductions, and credits, the end of the return identifies the amount the taxpayer owes in taxes or the amount of tax overpayment. Overpaid taxes may be refunded or rolled into the next tax year. Taxpayers may remit payment as a single sum or schedule tax payments on a periodic basis. Similarly, most self-employed individuals may make advance payments every quarter to reduce their tax burden.

You can file a tax return by filling it out yourself, using a tax software program, or by hiring a tax preparer or accountant who will gather the required information from you and file it on your behalf.

Special Considerations

The IRS recommends that filers keep tax returns for at least three years. However, other factors may require more prolonged retention. Some situations may require indefinite retention of filed returns.

If a tax return contains errors, an amended return should be submitted to correct the discrepancy.

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  1. Internal Revenue Service. "1040 (and 1040-SR) Instructions."

  2. Internal Revenue Service. "Instructions for Form 1065."

  3. Internal Revenue Service. "Instructions for Form 1120."

  4. Internal Revenue Service. "General Instructions for Certain Information Returns."

  5. Internal Revenue Service. "About Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return."

  6. Internal Revenue Service. "Topic No. 404 Dividends."

  7. Internal Revenue Service. "Topic No. 409 Capital Gains and Losses."

  8. Internal Revenue Service. "What Is Taxable and Nontaxable Income?"

  9. Internal Revenue Service. "Traditional and Roth IRAs."

  10. Internal Revenue Service. "Instructions for Schedule A Itemized Deductions," Pages 3, 8.

  11. Internal Revenue Service. "Publication 535, Business Expenses."

  12. Internal Revenue Service. "Topic No. 501 Should I Itemize?"

  13. Internal Revenue Service. "Credit for the Elderly or the Disabled at a Glance."

  14. Internal Revenue Service. "Credits and Deductions for Individuals."

  15. Internal Revenue Service. "1040 (and 1040-SR) Instructions," Pages 61-62.

  16. Internal Revenue Service. "Self-Employed Individuals Tax Center," Selected, "How Do I Make My Quarterly Payments?"

  17. Internal Revenue Service. "How Long Should I Keep Records?"

  18. Internal Revenue Service. "Topic No. 308 Amended Returns."

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