Question

Q1. explain how is income reported in the taxpayer return.

Answer 1

Ans : A tax return is a form(s) filed with a taxing authority that reports income, expenses and other pertinent tax information. Tax return allows taxpayers to calculate their tax liability, schedule tax payments or request refunds for the over -payment of taxes. In most countries tax returns must be filed annually for an individual or business with reportable income.

There sections of a tax return :

Income section : The income section of the tax return lists all sources of income. The most common method of reporting is a W-2 tax form. Wages, dividends, self employment income, royalties and in many countries capital gain must also be reported.

Deductions : Deductions decrease tax liability. Tax deductions very considerably among jurisdictions but typical examples include contributions to retirement saving plans, alimony paid and interest deductions on some loans. For businesses most expenses directly related to business operations are deductible. Taxpayers may itemize deductions or use the standard deduction for their filing status. Once the subtraction of all deductions is complete, the taxpayer may determine their tax rate on their adjusted gross income.

Tax credits : Tax credits are amounts that offset tax liabilities or the tax owed. Like deductions these vary widely among jurisdictions. However, there are often credits attributed to the care of dependent children and seniors, pensions, education and many more.

After reporting income, deductions and credits, the taxpayer ends their tax return. The end of the return identifies the amount the taxpayer owes in taxes or the amount of tax overpayment. Overpaid taxes may be refunded or rolled into the next tax year. Taxpayers may remit payment as a single sum or schedule tax payments on a periodic basis. Similarly most self employed individuals may make advance payments every quarter to reduce their tax burden.

Selection and filing of the correct tax return form as per the residential status, source and quantum of income is necessary as filing of an incorrect tax form may render the income tax return as defective.