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5 steps to follow before filing federal tax returns

The tax filing season is just around the corner. While there may be some who may be filing income tax returns for the first time, others may be wondering whether or not they are eligible to file for income tax returns. While the whole concept might look intimidating, it is not a difficult process.

In case you are not eligible to file your tax returns by law, you may still go ahead and do it. Doing so will let you benefit from the same. Also, there are various factors that determine whether or not you are eligible for filing income tax returns. Once you find out that you are eligible, you should know the basic set of rules for filing the tax returns.

The following are some of the criteria that make you eligible for filing for income tax returns. You are required to file your tax return if,

  • You have a gross income of more than $10,000 per year
  • You have sold your home during the financial year when you are filing for tax returns
  • You have earned more than $400 as a means of self-employment
  • You are indebted due to your retirement account; these can be either from excess contributions or distributions

One must also note that these are only a few of the circumstances under which you will be eligible for filing your income tax returns. There are a few more criteria that decide the same. In case you do not fall under the above categories, you should take expert advice from a tax professional who can help you get in-depth details.

Let us take a look at some of the important steps before you file your federal tax returns.

Step 1: Find out whether or not you are required to file your tax returns
As mentioned earlier, there are some basic criteria that make you eligible for filing your tax returns. Citizens falling in the low-income earners’ category along with some others are exempt from filing a federal tax return. Thus, you need to first check with the Internal Revenue Service (IRS) file requirements before you proceed with your tax filing.

Step 2: Determine the status of your tax filing
The following are some of the statuses mentioned in the tax filing form:

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of household
  • Qualifying widow(er) with dependent child

There might be a possibility that you are eligible for more than one statuses, and in that case, you must pick the one wherein you can file the return with the lowest tax.

Step 3: You need to calculate the personal exemptions and number of dependents
The IRS allows you to claim for personal exemptions as well as for dependents. It is interesting to note that personal exemptions are similar to the tax exemptions as these lessen the burden for you to pay excess tax, thereby reducing the taxable income. For the year 2018, the personal exemption is $4,150. Moreover, the alternative minimum tax exemption has now been permanently attuned which falls as under:

  • Individuals – $55,400
  • Married filing jointly and surviving spouses – $86,200
  • Married filing separately – $43,100
  • Trusts and estates – $24,600

There are some other deductions that would be calculated when you file your 2018 tax returns such as the following:

Student loan interest deduction: The maximum amount you can avail as an exemption under this category stands at $2,500.

Foreign earned income exclusion: The foreign earned income deduction has been updated from the last year’s $102,100 to the new exclusion as $104,100.

Transportation and parking benefits: The benefits under this category have been updated to $260, which applies to transportation in a customer vehicle and qualified parking.

Medical savings accounts: For self-only coverage under MSA, the annual deduction ranges between $2,300 and $3,450. Moreover, the annual deduction for family coverage ranges between $4,600 and $6,850.

Step 4: Report your income for the financial year
One can review their annual income under Wage and Tax Statements. However, this can get a bit complex in case a person has switched jobs during the financial year. Also, those who are self-employed need to take this section more carefully to report their exact income.

Step 5: Claim eligible tax credits and exemptions
Tax deductions help reduce the taxable income and one can easily get a tax advantage from the same. Tax credits assist in lowering the actual amount of tax that you owe. Under both these cases, you would be able to receive a tax refund. Ensure that you understand the process of claiming for tax credits and deductions as mistakes in the process might end up delaying the tax refund.

In case you are filing your own income tax returns, you can simply order the IRS tax forms through the US mail delivery service or access them online on the official IRS website.

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