Spring has finally sprung! So, as we say goodbye to colder temperatures and welcome the warmer weather, it also means an important milestone is near: the U.S. tax deadline. This year, tax filings are due on Monday, April 18th.
If you’re one of the 36 million Americans who have already submitted your tax return, go ahead and give yourself a pat on the back. But, if you’re like me and have been putting it off, now’s a great time to get started. The sooner you submit your tax return, the sooner you could get some money back in your pocket.
And, if this is your first time submitting a tax return, don’t worry. We know taxes can be a complicated topic. That’s why Step’s got your back. Below, we’re breaking down everything you need to know about tax season.
What is tax season?
Whether you realize it or not, taxes are a part of your everyday life - from the sales tax you pay when shopping or eating out, to the income tax that is deducted from each of your paychecks. Americans are typically required to pay two types of taxes - state and federal. Wondering what each of these tax returns are used for?
State: These funds help make improvements to things like schools, parks and public transit.
Federal: These tax dollars are put towards things like healthcare, the military and your social security (money to help cover your retirement costs).
Each spring, the Internal Revenue Service (IRS) asks Americans to file a tax return (commonly known as a 1040), summing up all the money you’ve made in the past calendar year. This may include money earned from a job, receiving a large gift or even selling bitcoin for a profit.
Now let’s walk through all the key components of this form, which ultimately determines if you owe the government money or if they in fact owe you money.
Do I need to participate?
While most Americans will need to submit a tax return, there are some exceptions. Let’s start by answering a few simple questions to help determine whether or not you need to submit a return:
Are you considered a dependent? This is typically defined as a child or family member who receives a significant amount of financial support from the person filing and often lives with them. If you are unsure about your status as a dependent, ask your parent, guardian or a tax professional for guidance.
How much income did you make in the past year? If your income meets or exceeds $12,550 (the standard deduction for the 2020 tax season), you’ll need to submit a tax return. What is a deduction you ask? It’s the amount of money removed from your taxable income, otherwise known as adjusted gross income (AGI).
Important note: If your employer withheld taxes from your paycheck, you’ll want to submit a return (even if you don’t meet the standard deduction amount) to obtain a refund.