How Do Tax Returns Work? An Informative Guide

Top 5 Factors to Consider When Choosing a Tax Advisor How Do Tax Returns Work

ExecutiveChronicles.com | How Do Tax Returns Work? An Informative Guide | Each year, all working people file their taxes. If your income meets a certain standard, you get a tax return back two weeks later. 

You might be wondering: What does any of this mean? How do tax returns work?

If you find yourself confused by the tax return process, don’t worry. You are not alone. In fact, many adults grow up and wish they had been educated more thoroughly on personal finances. 

Before you file your next tax return, take this opportunity to learn more about how tax returns actually work. Keep reading, and we’ll explain it all.

What Is a Tax Return?

Throughout each year, you are paying taxes. You pay taxes on things you buy and the income you earn. Different types of taxes factor differently into your tax return.

Your tax return is a reimbursement for a certain percentage of the income tax you paid throughout the year. How much you get reimbursed depends on a couple of factors. 

Generally, the lower your income is, the larger your tax return will be. If you spent a lot of your personal money on work expenses, that will also make your return larger.

You will also generally be reimbursed less if you are a freelance worker. 

If you still have questions, feel free to read more on tax return filing.

How Do Tax Returns Work?

The tax return process can seem confusing at first, but it is fairly straightforward. In order to determine how much your refund will be, the government must know how much income tax you paid. 

Your employer will give you the correct forms at the beginning of the tax season. Those forms will tell you how much income tax you paid. 

Give the government those numbers along with any money you spent on work-related expenses. Then, they will be able to calculate your return. 

Does Everyone Need to File Their Taxes?

Most full-time workers need to file their taxes. However, if you work part-time or make less than minimum wage, you may not need to file. 

Each country has specific guidelines about what the income cutoff is for filing taxes. 

As a general rule, if you make a comfortable living wage, your government requires you to file your taxes. 

Does Everyone Get a Tax Return?

Unfortunately, not everyone will receive a tax return. For example, freelance workers often owe money to the government after filing their taxes.

That is because freelance workers do not have income tax automatically taken out of their paychecks. As a result, they are required to pay income tax back to the government. 

Even if you are a freelance worker, you always have opportunities for saving money on taxes. 

People who work from home or own their own business often spend a lot of their own money on work-related things. For example, if you have a home office, you probably spend extra money on electricity for that room.

That utility expense can be written off and will detract from the amount of taxes you owe. 

If you have a traditional employer but get paid in cash, it is important to keep track of your cash earnings. Income tax is not taken out of cash payments, so you may also owe the government money in that case. 

What Is the Time Frame Of My Tax Return?

Your employer should give you your tax forms close to the beginning of the year. After you have these forms, you can file as soon as tax season begins. 

Once tax season begins, you will have a couple of months to file your taxes on time. Tax season generally ends in April. 

If you miss the tax deadline, you can still file, but you may need to pay a small fee. If you think you are going to miss the deadline, get an extension from the government as soon as possible. 

After you file your taxes, you should receive your tax return in about 2-4 weeks. If you owe money to the government, they should notify you of that in the same timeframe. 

Do I Need to Report Unemployment Payments?

During the COVID-19 pandemic, more people than ever collected unemployment payments. For many, that makes tax season seem more complicated.

When you signed up for your unemployment benefits, you selected one of two options: to have income tax taken out of your payments ahead of time or to pay back your income taxes later. 

If you elected to have your taxes deducted ahead of time, congratulations! You won’t owe any money because of your unemployment payments. 

If you did not make that choice, you may owe the government some money. However, some people may qualify for a free pass on paying income tax on unemployment payments. It depends on how much money you received.

In either case, you need to report your unemployment payments when you file your taxes. You’ll find the correct forms on your unemployment website.

How Can I Get the Largest Possible Return?

To get the largest possible tax return, it’s important to hire the best tax filing service you can find. Professionals can help you find deductions and opportunities to save.

There are always ways to get more out of your tax return that aren’t obvious to the untrained eye. Paying professionals to help you will be worthwhile when you get back a much larger return. 

File Your Taxes the Right Way

You can now answer the age-old question, “How do tax returns work?” With this new knowledge, you should go out and get the largest return possible. 

Remember to file on time, collect all the right paperwork, and hire the best help you can. 

For more finance tips, check out the rest of our blog!