What is considered a simple tax return? A simple tax return is one that reports basic income, such as a salary or wages, and does not include more complex capital gains, inheritance or other income sources. In addition, a simple tax return includes the standard deduction, rather than a variety of itemized deductions and Schedule C business expenses.
Learning how to file a simple tax return can save you lots of money over the years since you won't need to pay a tax preparer. If you follow the directions on Form 1040 and use the accompanying instruction booklet, you can handle your own taxes for years to come.
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If you're still not completely sure about your work, you can try to prepare the first draft of your return, then hire a low-cost tax preparer, such as an online tax-prep service, to check your work.
Consider also: Form 1040: What You Need to Know
Basics of a Simple Tax Return
People can earn and receive a wide variety of taxable income during the year. You might earn a salary or get paid hourly by an employer. You might be a freelancer or contractor or own your own small business.
You might receive a gift from a family member or friend, have rental income or have received unemployment income. If you have investments, you might have capital gains. Inheritance is another form of income.
Some Social Security benefits and some other retirement account withdrawals are taxable. Not all income, including some gifts and inheritances, is taxable, further complicating things.
With a simple tax return, your income usually comes from salary or wages, which are reported via the Form W-2 you receive from your employer. Adding one or two other forms of basic income, like Social Security and retirement account distributions, won't complicate a tax return. If you're self-employed or own a small business, you probably won't be able to file a simple tax return.
As far as your deductions go, the government allows you to take the standard deduction or itemize. Simple tax returns usually claim the standard deduction.
Consider also: W-2 Forms: What It Is, Who Gets One & How It Works
Itemizing vs. Standard Deduction
The standard deduction for a single person, or a married person filing separately, is $12,550 for 2021. If you are claiming head of household status, it's $18,800. If you are married and filing jointly, it's $25,100. For 2022, those numbers are $12,950, $19,400 and $25,900, respectively. You can use this tool on the IRS website to help you determine your standard deduction.
Things get a bit more complicated when you itemize your deductions or claim business-related expenses. Some people aren't able to take the standard deduction based on their filing status. Others will get more benefit itemizing, especially if they paid state and local sales, real estate, personal property or income tax, had disaster losses, paid mortgage interest, made charitable donations or had dental and medical expenses, explains the IRS.
Filing Taxes Online
The IRS makes it even easier to file your taxes via their e-file system. CNBC.com provides a list of options for filing a free simple tax return. Low-cost tax preparers you use usually file your taxes online, helping you get your refund sooner. The IRS website offers four e-filing options for those who make $73,000 or less per year.