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A tax return is the completion of documentation that calculates an entity or individual's
income Income is the Consumption (economics), consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be diff ...
earned and the amount of
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
es to be paid to the
government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government ...
or government organizations or, potentially, back to the taxpayer.
Taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
is one of the biggest sources of income for the government. There are two types of taxes—
direct Direct may refer to: Mathematics * Directed set In mathematics, a directed set (or a directed preorder or a filtered set) is a nonempty Set (mathematics), set A together with a Reflexive relation, reflexive and Transitive relation, transitive ...
and indirect—which are both parts of the tax revenue.
Tax revenue Tax revenue is the income that is collected by governments through taxation. Taxation is the primary source of government revenue. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resourc ...
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. Total tax revenue calculated as a percentage of
GDP Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...
shows the share of the country’s output collected by the government through taxes. Tax revenue is used by governments to grant sums of money to communities, the military, education, hospitals, and infrastructure. In the United States the
Internal Revenue Service The Internal Revenue Service (IRS) is the revenue service for the Federal government of the United States, United States federal government, which is responsible for collecting Taxation in the United States, U.S. federal taxes and administerin ...
(IRS) administers federal tax laws. It is a government entity that fulfils three main functions. Firstly, it processes tax returns. Secondly, it provides services for taxpayers. Thirdly, it enforces the tax laws enacted by Congress. Furthermore, IRS also investigates financial crimes and oversees tax-exempt organizations. 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. In contrast, countries such as Saudi Arabia, Brunei, Monaco, the Cayman Islands, Bahamas, and Andorra are so-called
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
s. These countries only tax very specific types of wealth or income, have very low tax rates in general, or have no taxes at all.


Tax Schedule

In the United States, a tax schedule is a form required by the Internal Revenue Service (IRS) to be prepared 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. 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 IRS. The simple tax returns can be filed using the
Form 1040 Form 1040 (officially, the "U.S. Individual Income Tax Return") is an IRS tax form used for personal federal income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (c ...
whereas the complex tax returns additionally requires a tax schedule to be completed with the tax returns. 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
taxpayer A taxpayer is a person or organization (such as a company) subject to pay a tax. Modern taxpayers may have an Taxpayer Identification Number, identification number, a reference number issued by a government to Citizenship, citizens or Company, f ...
s or private entities that are required to report information on the tax liabilities, including income earners, businesses, and companies.


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. A tax return is different from a
tax refund A tax refund or tax rebate is a payment to the taxpayer due to the taxpayer having paid more tax than they owed. By country United States According to the Internal Revenue Service, 77% of tax returns filed in 2004 resulted in a refund cheque ...
. 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. 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. In Denmark and Sweden, 97% and 74% of taxpayers had their forms prefilled by tax authorities respectively in 1999. The length of the completion of a tax return depends on the country, but the world average is almost 232 hours.


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 accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive rev ...
. In the United States, the most widely known method for detailing is a
form W-2 Form W-2 (officially, the "Wage and Tax Statement") is an Internal Revenue Service (IRS) tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee ...
, obtained from an
employer Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a co ...
. Wages, salaries, dividends, and interest should likewise be considered as a source of revenue. 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 Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting, is an income distributed to the ownership , owner in a Profit (economics) , profitable mar ...
, Income from Other Sources. Deductions: Reasoning or deductions form taxable income that reduces tax liability. For organizations, most expenses specifically identified with business tasks are
deductible In an insurance policy, the deductible (in British English, the excess) is the amount paid Out-of-pocket expenses, out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term ''deductible'' ma ...
. 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 Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction, if available. M ...
, 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. Tax credits:
Tax Credits A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state (polity), state. It may also be a credit granted in recognition of taxes already paid or a for ...
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 A child tax credit (CTC) is a tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state (polity), state. It may also be a credit granted ...
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 The American Opportunity Tax Credit is a partially refundable tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state (polity), state. It ...
in the United States. 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.


See also

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IRS tax forms Internal Revenue Service (IRS) tax forms are Form (document), forms used for taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service of the United States. They are used to report income, calculate Ta ...
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Tax information reporting Tax information reporting in the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consist ...
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Tax return (Australia) Australian tax returns for the tax year A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spendi ...
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Tax return (Canada) A Canadian tax return refers to the obligatory forms that must be submitted to the Canada Revenue Agency The Canada Revenue Agency (CRA; ; ) is the revenue service of the Government of Canada, Canadian federal government, and most Provinces an ...
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Income tax return (India) Income tax return is the form in which assessee files information about his/her income and tax thereon to Income Tax Department. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7. When you file a belated return, you are not a ...
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Tax return (United Kingdom) In the United Kingdom, a tax return is a tax form, document that must be filed with HM Revenue & Customs declaring liability for taxation. Different bodies must file different returns with respect to various forms of taxation. The main returns c ...
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Tax return (United States) Tax returns in the United States are reports filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency (California Franchise Tax Board, for example) containing information used to calculate Income tax in the Un ...
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Tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trust (property), trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities ...


References

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