Not everyone understands the complicated process of tax return preparation. Some tend to confuse returns with refunds, which often leads to costly mistakes. Use this guide to help you understand what each term means.

Returns

A tax return refers to the form submitted and filed annually with the relevant authority, such as the IRS or a state collection agency. It contains details about your income, expenses, and other information on tax liabilities. Tax debts primarily depend on how much you’re earning from your work and other income sources.

During tax return preparation, the form used differs according to the taxpayer type. For individuals, the most common is Form W-2, the document for income tax withheld on wages and salaries. Individual taxpayers have to use Form 1040 to file their annual income tax returns, which includes other tax obligations on earnings and gains aside from employment.

You can amend submitted documents if you made errors or received updated information that impacts taxes. However, the IRS conducts random audits to check for oversights. As such, it’s best to go over your returns thoroughly before submitting them to avoid penalties.

Refunds

Standard deductions and acceptable tax credits can reduce your federal and state tax debts—the former lowers your taxable income while the latter is considered a tax break. The deduction amount you get depends on your filing status. If you’re married and have dependents, you qualify for a higher deduction compared to single taxpayers.

During tax return preparation, it’s crucial to know which deductions and credits apply to your particular situation to avoid overpaying. Overpayment is always possible since your employer isn’t privy to your other sources of income.

If you did pay more than what you owed, you’re eligible for a refund. Expect to receive it within 21 days after return filing, or keep checking its status.

Get prompt assistance and professional advice on tax return preparation from Joe Heard, CPA, in Checotah, OK. He and his team provide business consulting and accounting services to clients, including retirement planning, payroll services, and bookkeeping. Call (918) 473-1492 to schedule a free initial consultation or visit them online for more information.