Knowing how taxes work helps you understand what to keep track of throughout the year, how to organize your paperwork and how to get help preparing your income tax return. Then, filing it with the IRS before the April 15 tax deadline becomes much smoother!
But exactly how should you file? Whether you’re an individual, a small business owner or an independent contractor, there’s a way to file that’s just right for you. It’s not just about meeting legal obligations—it’s also about maximizing your potential refunds and minimizing liabilities.
How to File Taxes as an Individual
You need to file an individual return if you earned income by either working for someone else, performing gig work on the side or if you received retirement or investment income.
W-2 Employees
If you’re a W-2 employee, start by collecting all your W-2 forms from your employers, along with any other tax documents such as 1099s for additional income, mortgage interest statements and deductible expenses.
When preparing your tax return, you can opt to either take the standard deduction or itemize deductions. If you take itemized deductions, be prepared to detail your deductible expenses on Schedule A (Form 1040). You’ll report your income and deductions on that form, and if you have any tax credits, you’ll claim them there as well.
Once your tax return is complete, be sure to file it with the IRS by the April 15 tax deadline. If you owe taxes, you’ll need to submit payment by this date. On the other hand, if you’ve overpaid throughout the year, you can expect a refund.
Independent Contractors (Self-Employed)
If you earned money as an independent contractor performing gig work, freelance work, consulting or other type of self-employment, be sure to gather all of your 1099-NEC forms, invoices and receipts for business-related expenses when you file. You need to include both Schedule C (Form 1040) and Schedule SE (Form 1040) with your Form 1040.
- Schedule C is for reporting your income and expenses from self-employment
- Schedule SE is for calculating your self-employment tax, including your Social Security and Medicare contributions
Pro tip: Since taxes aren’t typically withheld from freelance income, it’s a good idea to make estimated tax payments quarterly to avoid penalties and ensure you’re covering your tax liability throughout the year.
Filing Taxes for Investments
If you have investments, you also need to consider any capital gains or losses when filing personal income taxes. Start by gathering all relevant financial documents that report your investment income, such as Form 1099-DIV for dividends, Form 1099-INT for interest income, and Form 1099-B for the proceeds from the sale of stocks or other securities. You’ll report dividend and interest income on your Form 1040, and you’ll use Schedule D (Form 1040) to report capital gains and losses from the sale of investments.
Filing Taxes for Retirement Income
If you received distributions from retirement or profit-sharing plans, IRAs, pensions or annuities, you need Form 1099-R . It’s important to accurately report all of your investment income and take advantage of any applicable deductions or credits related to your investments, such as the foreign tax credit or deductions for investment interest expenses. You’ll file those along with your personal tax return.
How to File Taxes as a Business Entity
Business owners and operators have important tax implications to consider when filing. Depending on the business entity structure, you may need to account for profits on your personal tax filing. Here’s a look at the landscape for filing taxes as a business.
Filing Taxes as a Sole-Proprietor LLC
If you’re the sole owner of an LLC, meaning that you’re the exclusive owner of the business, you should have a record of your LLC’s income and expenses. You’re responsible for paying any taxes due, including self-employment tax, and as mentioned above, it helps to make estimated tax payments throughout the year if you expect your tax liability to be significant.
On your personal tax return, fill out Schedule C to report the LLC’s business income and expenses. If your LLC is profitable, calculate the self-employment tax due using Schedule SE. Your tax return will include your Form 1040 with the Schedule C and SE attached.
Filing Taxes as a C-Corporation
C-Corp owners should start by organizing all the corporation’s financial records, including income statements, balance sheets, payroll information and records of expenses. The corporation will file its own tax return using Form 1120 to report income, deductions and credits, as well as calculating the corporate income tax liability.
If the corporation distributes dividends, these are reported on the shareholders’ personal tax returns and subject to taxation at their individual tax rates. The C-Corp must pay its corporate tax by the April 15 tax deadline, and any dividends distributed to shareholders must be reported on their individual returns.
Filing Taxes as an S-Corporation
Owners of an S-Corp need to gather the company’s financial statements and file Form 1120S, which is used to report the S-Corp’s income, losses, deductions and credits. Each shareholder receives a Schedule K-1 that details their share of the corporation’s income or loss, which they have to report on their personal tax returns.
The S-Corp itself does not pay taxes on the income. Instead, shareholders are taxed on their income tax returns for their respective shares of the S-Corp’s income.
Filing Taxes as a Partnership
Partners need to gather the partnership’s financial records before filing Form 1065, which is used to report the partnership’s income, deductions and credits. Each partner receives a Schedule K-1, which outlines their share of the partnership’s income or loss. Partners must then include this information on their personal tax returns, reporting their share of the partnership’s income or loss.
A partnership does not pay income tax. Instead, the tax liability is passed on to the individual partners.
Tax Considerations for Employers
If you’re an employer, you’re responsible for collecting and maintaining accurate payroll records for your employees throughout the year. You must complete a Form W-2 for each employee, which details their annual wages and the taxes withheld from their paychecks. Additionally, you’re required to file Form 940, which reports your annual Federal Unemployment Tax Act (FUTA) tax liability, and Form 941, which is used to report income taxes, Social Security tax or Medicare tax withheld from employees’ paychecks, as well as your portion of Social Security or Medicare tax. In the event that you made payments to non-employees, such as independent contractors, you’ll need to issue Form 1099-NEC for everyone who received $600 or more from you during the tax year.
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