Tax return

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German tax forms

A tax return is the completion of documentation that calculates an entity’s or individual's income earned with the amount of tax payable to the government, government organizations or to potential taxpayers.

Specific tax forms can be used by taxpayers, or private entities that are required to report information on the tax liabilities together with income earners, businesses, and companies.[1]

Taxation is one of the biggest governmental sources of income. There are two types of taxes—direct and indirect—which are both parts of the tax revenue. Tax revenue is the income of government gained from taxes that are levied on income, profit, goods and services, land revenue, ownership, and transfer of property, and other taxes.[2] It shows how effectively and to what extent the government manages the resources of the economy. Total tax revenue is then the percentage of GDP which stands as an indicator of 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, including military, education, hospitals, and infrastructure.[4] There are many programs that use money from the tax revenue such as defence and security that includes grants for Department of Defence; social security programs, major health programs, or safety net programs which are for example unemployment insurance, low-income housing assistance, food stamps etc.[5]

In the United States the Internal Revenue Service (IRS) administers federal tax laws.[6] 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.[7]

Citizens in Sweden, Denmark, Finland, and Iceland pay the highest taxes. Aside from the Nordic countries, Austria, the Netherlands, and Belgium also have high taxes.[8] In contrast, countries such as Saudi Arabia, Brunei, Monaco, the Cayman Islands, Bahamas, and Andorra are so-called tax havens. These countries either have very low taxes, or none at all.[9]

Filling in the tax return[edit]

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.[10]

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.[11]

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.

The length of the completion of a tax return depends on the country, but the world average is almost 232 hours.[12]

The three parts of a tax return[edit]

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, interest should likewise be considered as a source of revenue.[13]

Deductions: Reasoning or deductions decline in tax debt. For organizations, most expenses specifically identified with business tasks are deductible. Citizens may separate conclusions or utilize the standard derivation for their documenting situation. When the reduction of all outcomes is finished, the citizen may decide their expense rate on their balanced gross salary.

Tax credits: Tax Credits are beneficial incentives to the taxpayers and reduce the amount of liability paid to the 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. If a person has educational expenses that they have incurred, they might qualify for tax credits under the American Opportunity Tax Credit.[14]

See also[edit]


  1. ^ Office, Australian Taxation. "Income tax return". Retrieved 2018-08-22.
  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". Retrieved 2018-08-22.
  5. ^ Tax, TurboTax-Taxes, Income. "How Are Federal Taxes Spent?". Retrieved 2021-04-18.
  6. ^ "About IRS | Internal Revenue Service". Retrieved 2021-03-28.
  7. ^ "What does the IRS do and how can it be improved?". Tax Policy Center. Retrieved 2021-03-28.
  8. ^ "Which countries tax their citizens the most?". World Economic Forum. Retrieved 2021-03-27.
  9. ^ "11 lowest income tax countries in the world right now". The CEO Magazine. Retrieved 2021-03-27.
  10. ^ Tax, TurboTax-Taxes, Income. "Does Everyone Need to File an Income Tax Return?". Retrieved 2021-03-28.
  11. ^ "What Is a Tax Refund and Why Do You Get One?". SmartAsset. 2021-01-22. Retrieved 2021-03-28.
  12. ^ "Time to prepare and pay taxes (hours) | Data". Retrieved 2021-03-27.
  13. ^ "Policy Basics: Where Do Federal Tax Revenues Come From?". Center on Budget and Policy Priorities. 20 August 2012.
  14. ^, Jennifer Woods, special to (11 April 2016). "The top 10 tax credits that should be on your radar". CNBC.