Individual Tax Returns
What is an Individual Tax Return?
Filing an individual tax return is the legal process by which a person reports income, and either pays any taxes owed or receives a refund if they have already overpaid. It requires filing a set of forms with the relevant tax authority, which is likely both the Internal Revenue Service (IRS) and a state tax department(s), to report personal income, claim deductions, and claim tax credits.
IRS Form 1040
Form 1040 is the federal personal tax return used to report wages, interest, dividends, capital gains, retirement distributions, rental income, and any business income reported by a sole proprietor (Schedule C). It calculates your income tax and applies deductions and credits to determine whether you must pay taxes or receive a refund.
Key components:
Income reporting, which includes W-2 wages, 1099 income, interest, dividends, capital gains, retirement distributions, rental, and business income.
Adjustments, including retirement contributions, student loan interest, educator expenses, and self-employment deductions.
Deductions & credits: are you taking the standard deduction? Or, are you itemizing deductions and credits such as the child tax credit or education credits, using Schedule A?
Additional taxes include the self-employment tax and alternative minimum tax, when applicable.
Supporting Schedules: here’s a quick guide: Schedule A (itemized deductions), Schedule B (interest and dividends), Schedule C (sole proprietor business income and expenses), Schedule D (capital gains), and Schedule E (rental and royalty income). If you are a sole proprietor, your business income flows to Schedule C and then to Form 1040.
Filing deadlines & action items: Individuals typically must file by April 15 (dates may shift for weekends/holidays). If you receive business or rental income, track your expenses, retain receipts, and consider quarterly estimated tax payments to avoid underpayment penalties. If you need help preparing a personal tax return or handling personal business taxes, consult a tax professional.
The 1040 is widely used because it is the tax filing form for W-2 earners and sole proprietors. For example, a W-2 employee with $70,000 wages and a standard deduction reports wages on Form 1040 with claims credits/deductions there as well. A sole proprietor with $100,000 gross receipts and $40,000 deductible expenses reports his/her net business income ($60,000) on Schedule C of Form 1040. Note that the sole proprietor must also account for self-employment tax and estimated tax payments.
FAQ: Important Considerations for Individual Tax Returns
How long should I keep tax records?
Good recordkeeping is the foundation of accurate tax filing. The IRS generally recommends keeping records for at least 3 years from the date you filed for most items. However, certain situations require longer retention:
Up to 7 years if you underreport income by more than 25% or claim a loss from worthless securities.
Indefinitely for records related to the basis of property (e.g., for capital gains calculations).
Employment-related records: keep pay stubs, W-2s, and withholding records for at least 4 years after the date the tax becomes due or is paid.
When must I make estimated tax payments?
Individuals who do not have sufficient tax withheld from wages—for example, freelancers, investors, small business owners, or retirees with significant non-wage income—may need to make quarterly estimated tax payments to avoid underpayment penalties.
Estimated taxes are generally due on April 15, June 15, September 15, and January 15 of the following year.
If you expect to owe $1,000 or more when you file your return, you should consider paying estimates.
How can I plan to reduce taxes and maximize deductions?
Effective tax planning involves managing income and deductions, claiming available credits, and keeping accurate records. Key tips include:
Keep documentation for all deductible expenses, including medical expenses, mortgage interest, charitable contributions, and education costs.
Consider timing income and deductions strategically, such as deferring income or accelerating deductible expenses when appropriate.
Review tax credits for which you may qualify, such as the Child Tax Credit, Earned Income Tax Credit, or education credits.
What are the key compliance items to avoid penalties?
To prevent penalties and interest:
File your tax return and any extensions on time.
Pay taxes owed or estimated taxes by the deadlines.
Respond promptly to any IRS notices and keep detailed records of your correspondence.
Stay informed of major tax law changes that may affect deductions, credits, or filing requirements.
When should I hire a CPA or tax professional?
Hiring a CPA or tax professional is advisable if your personal tax situation is complex or if you simply prefer to have your taxes handled by someone else.
Complex situations can include:
Multiple sources of income (investments, retirement accounts, rental property).
Significant life events affecting taxes (marriage, divorce, inheritance, or home purchase).
Desire for strategic tax planning to minimize liability or maximize refunds.
Assistance with IRS notices, audits, or resolving tax disputes.
At The Chamberlain Accounting Firm, we are recognized as one of the leading accounting firms in Bergen County, New Jersey, serving clients in towns across the county and in surrounding states. Our services encompass accounting for attorneys, general bookkeeping and accounting, the preparation of individual tax returns (Form 1040), and business tax returns for partnerships and corporations (Forms 1065, 1120, and 1120S). We are dedicated to helping law firms and small businesses achieve financial accuracy, maintain compliance, and support growth wherever they are located.
Contact us today or call us at (201) 464-1011 to learn how we can help your business maintain financial health and compliance.