German tax forms

A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer.[1]

Taxation is one of the biggest sources of income for the government. There are two types of taxes—direct and indirect—which are both parts of the tax revenue. Tax revenue is the income gained by government from taxes that are levied on income, profit, goods and services, land revenue, ownership, and transfer of property, and other taxes.[2] Total tax revenue calculated as a percentage of GDP shows the share of the country’s output collected by the government through taxes.[3] Tax revenue is used by governments to grant sums of money to communities, the military, education, hospitals, and infrastructure.[4]

Tax returns are usually processed by each country's tax agency, known as a revenue service, such as the Internal Revenue Service in the United States, the State Taxation Administration in China, and HM Revenue and Customs in the United Kingdom. Citizens in Sweden, Denmark, Finland, and Iceland pay the highest taxes and also get the highest benefits from taxes such as free or low-cost healthcare, education, childcare, etc. Austria, the Netherlands, and Belgium also have high taxes.[5] In contrast, countries such as Saudi Arabia, Brunei, Monaco, the Cayman Islands, Bahamas, and Andorra are so-called tax havens. These countries only tax very specific types of wealth or income, have very low tax rates in general, or have no taxes at all.[6]

Tax schedule

In the United States, a tax schedule is a form that the Internal Revenue Service (IRS) requires taxpayers to fill out in addition to the tax return. It is a tool that reports and provides information about the additional calculations and other amounts stated in the tax return.[7] These generally include information on amounts such as mortgage interest, interest income or charitable contributions.

Tax schedules are used by both taxpayers and taxation authorities such as the IRS. Simple tax returns can be filed using the Form 1040 whereas complex tax returns additionally require a tax schedule to be completed with the tax return. There are different types of schedules such as Schedule A, Schedule B, Schedule C, Schedule D, Schedule EIC, and Schedule SE. Specific tax forms can be used by taxpayers or private entities that are required to report information on their tax liabilities, including income earners, businesses, and companies.[8]

Filling in the tax return

A person may have to fill in a tax return depending on circumstances, which are different in each country. Generally, a tax return does not need to be filed if an income does not exceed a certain amount of money, but other factors such as the type of income, age, and filing status also play a role. Occasionally, there may be situations where a person does not have to fill in the tax return, but will do so anyway to receive a tax refund from the state.[9]

A tax return is different from a tax refund. A tax refund will occur when an individual has paid money to the state exceeding the level of expected income tax. In contrast, a tax return is a form a person needs to fill in every year to report income, expenses, and other relevant information. A tax return, therefore, helps a person to deal with tax calculations and payments or understand if a tax refund is due. This will depend on whether a person has overpaid on taxes, or were late in paying previous tax returns.[10]

The difficulty of filling in a tax return varies from country to country, but governments try to help citizens in different ways. Many governments utilize electronic filling and payment systems that keep a record of a person's history of tax returns and refunds. Another notable change in recent years is that government bodies share the data with each other. Within several European nations such as Denmark and Sweden, governments already provide citizens with prefilled return forms, which a citizen would sign if accurate, and if not, can fix the error on their own or prepare returns themselves.[11] In Denmark and Sweden, 97% and 74% of taxpayers had their forms prefilled by tax authorities respectively in 1999. [12]

The length of the completion of a tax return depends on the country, but the world average is almost 232 hours.[13]

Constituents of a tax return

In many countries, the three parts of a tax return usually include the following parts:

Income: This part consists of all the sources of a citizen's revenue. In the United States, the most widely known method for detailing is a form W-2, obtained from an employer. Wages, salaries, dividends, and interest should likewise be considered as a source of revenue.[14] It essentially measures the gross income which is divided into five subparts as per income tax laws: Income from Salary, Income from House Property, Profits and Gains from Business Profession, Income from Capital Gains, Income from Other Sources.[15]

Taxable income: Taxable income refers to the portion of your income that is subject to taxation. It includes various types of income, such as wages, salaries, rental income, dividends, and business profits, after deducting any allowable deductions. In Australia, the concept of taxable income is central to determining the amount of income tax you are liable to pay.[16]

Deductions: Reasoning or deductions form taxable income that reduces tax liability. For organizations, most expenses specifically identified with business tasks are deductible. Examples of tax deductions include mortgage interests, student loan interest, contributions to saving plans for retirement etc. The taxpayers can either itemize their deductions or use the standard deduction depending on which deduction on taxable income is greater.

Taxpayers can use standard deductions which varies according to filing status, for example, for older taxpayers (65 and above), the standard deduction is higher. It can be filed using Form 1040 or Form 1040-SR. In case of itemized deductions, the receipts for items to be filed under it must be preserved and divided into categories. At tax time, the expenses are recorded on Schedule A and the audited receipts are held back.[17]

Tax credits: Tax Credits are incentives for taxpayers that reduce the amount of liability paid to government entities. Tax credits are more impactful than deductions because they directly reduce the amount of money owed. If a person has $500 in tax credits, and the tax owed is $500, the tax credits will reduce a person's liability to zero. Tax credits arise from multiple areas. For example, a person may receive a Child Tax Credit if they care for a child under the age of 13. Education expenses might be treated as a tax credit in some countries, such as the American Opportunity Tax Credit in the United States.[18] The AOTC can cover up to four years of a full time student in a post secondary school. Depending on your income, you can earn up to $2,500 of the cost of qualified tuition and course material paid during the tax year.

Payments and Refunds - In this section, you'll report any tax payments you've made throughout the year, including estimated tax payments and withholding from your paycheck. If you've overpaid your taxes, you'll receive a refund.[19]

See also

References

  1. ↑ "Tax Return". Investopedia. Retrieved 2021-12-08.
  2. ↑ "WHAT IS TAX REVENUE". Business Standard India. Retrieved 2021-04-18.
  3. ↑ "Tax - Tax revenue - OECD Data". theOECD. Retrieved 2021-04-18.
  4. ↑ Australian Government Australian Securities & Investments Commission (2018-06-21). "Your first tax return | ASIC's MoneySmart". www.moneysmart.gov.au. Retrieved 2018-08-22.
  5. ↑ "Which countries tax their citizens the most?". World Economic Forum. 11 November 2019. Retrieved 2021-03-27.
  6. ↑ "11 lowest income tax countries in the world right now". The CEO Magazine. Retrieved 2021-03-27.
  7. ↑ "What Is a Tax Schedule?". The Balance. Retrieved 2022-03-19.
  8. ↑ Office, Australian Taxation. "Income tax return". www.ato.gov.au. Retrieved 2018-08-22.
  9. ↑ "Does Everyone Need to File an Income Tax Return?". turbotax.intuit.com. Retrieved 2021-03-28.
  10. ↑ "What Is a Tax Refund and Why Do You Get One?". SmartAsset. 2021-01-22. Retrieved 2021-03-28.
  11. ↑ Huseman, Jessica (20 March 2017). "Filing Taxes Could Be Free and Simple. But H&R Block and Intuit Are Still Lobbying Against It". propublica.org. Retrieved 30 June 2022.
  12. ↑ "What other countries use return-free filing?". taxpolicycenter.org. Retrieved 30 June 2022.
  13. ↑ "Time to prepare and pay taxes (hours) | Data". data.worldbank.org. Retrieved 2021-03-27.
  14. ↑ "Policy Basics: Where Do Federal Tax Revenues Come From?". Center on Budget and Policy Priorities. 20 August 2012.
  15. ↑ Motiani, Preeti. "ITR filing: Computing your total taxable income | How to calculate income tax". The Economic Times. Retrieved 2022-03-19.
  16. ↑ Zaheer, Jaxon Rylah, Kinza (2023-06-16). "Understanding Tax Returns in Australia: In Depth Overview". Taxly.ai. Retrieved 2023-11-14.{{cite web}}: CS1 maint: multiple names: authors list (link)
  17. ↑ "Taxpayers should know the difference between standard and itemized deductions | Internal Revenue Service". www.irs.gov. Retrieved 2022-03-19.
  18. ↑ CNBC.com, Jennifer Woods, special to (11 April 2016). "The top 10 tax credits that should be on your radar". CNBC.{{cite web}}: CS1 maint: multiple names: authors list (link)
  19. ↑ "Mastering IRS Tax Form 1040: U.S. Individual Tax Return". 2023-09-11. Retrieved 2023-11-29.
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