For
millions of self-employed Americans, there is a time-limit for reporting Social
Security earnings and getting credits toward future Social Security Benefits.
Filing tax returns in a timely manner is the only way for the Social Security
Administration to know how much you earned for Social Security Credit purposes.
The
California Society of Certified Public Accountants suggests the following steps to help self-employed Americans keep their Social
Security Credits for retirement:
Step 1.
Determine your tax filing status
The federal
tax filing statuses include: single, married filing jointly, married filing
separately, head of household, and qualifying widow(er) with dependent child.
You may qualify for more than one filing status, in which case you will have to
make a choice. In that situation, you should choose the filing status that will
result in the lowest tax.
Step 2.
Calculate your dependents and personal exemptions
The IRS
allows taxpayers to claim personal exemptions for themselves and their
dependents. A personal exemption is similar to a tax deduction because it
reduces your taxable income. For tax years 2009 and 2010, the maximum personal
exemption is $3,650 — note that your personal exemption amount may be less if
your income exceeds a certain amount. Your personal exemption information must
be 100% accurate on your tax return because it largely impacts how much federal
income tax you owe.
Step 3.
Report your income for the tax year
Most people
can simply review their W-2s
(Wage and Tax Statements) to determine their annual income. This can get
slightly more complicated if you have worked more than one job during the year.
Furthermore, individuals who are self-employed
will likely have to spend extra time on this part of the filing process.
Step 4.
Claim eligible tax credits and deductions
If you
qualify for any tax credits
or tax deductions, you
will want to take advantage of them. Tax deductions reduce your taxable income
and tax credits reduce the actual amount of tax that you owe — both will
increase your chance of receiving a tax refund.
Make sure you understand how to properly claim any income tax benefits, as
mistakes will delay the processing of your return. If you are preparing
your own income tax return, you may order IRS tax forms (and publications)
for delivery by U.S. mail or you can access the forms online. All of the
documents that you will need to file your federal income tax return should be
available on the IRS website.
Step 5.
Review tax return forms for filing.
Federal
Income Tax Forms
There are
different types of individual income tax return forms. You must use the tax
form that corresponds with your particular situation and allows you to claim
the income, deductions, credits, etc. that apply to you. The most common types
of income tax returns include the following:
Form
1040 (U.S. Individual Income Tax Return) (a.k.a. “the long form)
Form
1040A (U.S. Individual Income Tax Return) (a.k.a. “the short form)
Form
1040EZ (Income Tax Return for Single and Joint Filers With No
Dependents)
Form
1040NR (U.S.
Nonresident Alien Income Tax Return)
Form
1040NR-EZ (U.S.
Income Tax Return for Certain Nonresident Aliens With No Dependents) If
preparing your own taxes is too overwhelming, or you just don’t have the time,
consider hiring an experienced tax professional. If you have a complicated tax
return or you have questions about claiming certain tax credits/deductions,
using a tax preparer
can help make the filing process less painful. Or you can use an online tax
preparation tool such as 1040.com.
This article should help you understand how to file your federal income tax
return. Although filing and paying taxes can be stressful, having the right
information will reduce your risk of making costly mistakes.
Step 6.
Do additional resource.
The
California Society of CPAs has created a free Web site of articles, tools and resources to help consumers
on this and other personal finance issues. These resources can be
accessed by going to: “Dollars and Sense.”
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