In this lecture I will give you a 'bird's eye' look at a tax preparation process. You will learn what document is referred to as tax return, and what variants of it you might encounter.

This lecture is an explanation of what a Federal (not state) Tax Return is. I also show you what document is called US Federal Tax Return, address in short all the parts of that document. *Beginning with 2018, everyone who files a US Federal Tax Return, will use the same document, called Form 1040*.

The process of US Tax preparation always falls into the following steps:

1. List all income you made for the year from all sources (your job, side business, gigs, lottery winnings, etc).

2. Subtract all expenses you can claim as deductions.

3. Federal Income Tax will be calculated as % of the amount above (percentage depends on the amount of money you make - there are several tax brackets).

4. Subtract all expenses you can claim as credits from the amount of that tax.

5. Subtract amount of tax you already paid throughout the year (paycheck withholding or estimated tax paid).

6. Add any self employment tax (if you had gigs on the side).

7. Subtract expenses you can claim as refundable credits toward the tax above.

8. Your result will be either refund (if you overpaid tax) or balance due (if you underpaid tax during the year).

Your goal to be as close to ZERO as possible because IRS is not after ALL of you money, they only want the amount that you are liable for as tax.

Every tax preparation software will calculate your tax liability exactly the same way no matter if you go to a tax office or do it yourself on your own computer. There is no need to pay someone to do your taxes if you can take this course and learn how to do it correctly yourself.

Every tax preparation software will generate your tax document depending on the amount of information you need to enter. It will be form called 1040 by itself, if your tax return is very simple, or software will generate schedules 1, 2, 3, 4, 5, 6 or schedules A, B, C, C-EZ, D, E, EIC, F, H, J, R, SE, 8812. Complexity of your US Federal tax return depends on your life situation.

This is only general information on what we refer to as 'US Federal Income Tax Return' and 'doing taxes'.

Please watch the rest of the course for in depth information on all 8 steps of tax preparation.

I will introduce you to an unexpected fact - even if you don't have to do tax preparation, it could be beneficial to you.

You might be wondering who must and who should file a US Federal Tax Return.

Here are a number of simple criteria for you to check and see if any of them apply to you:

There are 5 groups of people who either live in the USA or Puerto Rico who must file depending on age and income, of course:

1. Individuals in general

2. dependents with certain income

3. Full time students or children under age 19

4. Self employed, or

5. Aliens.

If you belong to any of these groups, the next question is what are the rules for you?

It depends on the 3 factors below

• Your filing status

• Your gross income,

• Your age.

The first thing you need to do is determine your filing status. Your filing status depends on if you are single or married on December 31 of tax year and on your family situation.

Remember, that

If more than one filing status applies to you, choose the one that will give you the lowest tax. Tax preparation software will provide a prompt for you to do that.

Here's a chart with all 5 statuses and income thresholds

1. Single has to file if income is above $12,000 (younger than 65 yo) or above $13,600 (older than 65 yo)

2. Married Filing Jointly have to file is income is above:

• $24,000 (both spouses younger than 65 yo)

• $25,300 (one spouse is older than 65 yo)

• $26,600 (both spouses older than 65 yo)

3. Married Filing Separately if income is above $5 at any age

4. Head of Household if income is above $18,000 (younger than 65 yo) or above $19,600 (older than 65 yo)

5. Qualifying widow(er) with dependent child if income is above $24,000 (younger than 65 yo) or above $15,300 (older than 65 yo)

If your income is below the numbers mentioned above, for your filing status, you do not have to do taxes, unless you paid tax and want to get it refunded to you. Even if you don’t have to do taxes according to this table, you should if you are eligible for any of the following credits.

Earned income credit.

Additional child tax credit.

American opportunity credit.

Credit for federal tax on fuels.

        Premium tax credit.       

Health coverage tax credit.

And the last but not least note on this lecture:

Do only 1 federal tax return for each household!

It does not matter if you lived in several states or had several jobs and gigs on the side, only one federal income tax return per household is required.

Deductions and credits serve the same purpose - they reduce your tax bill.

To put it in very short terms, deductions reduce your taxable income.

For example, if you are single and no one else lives with you and you don't support anyone else financially, your income from all sources like your job, your side business, interest your savings have generated, etc. equals $75,000.

You rent an apartment which means that a standard deduction you are entitled to is $12,000 (in 2018). This amount is deducted from your income to reduce it before income tax is calculated. Which brings your taxable income down to $63,000.

You paid $4,000 in student loans interest, you will qualify for a $2,500 (this is maximum) student loan interest deduction from your income, which will bring your taxable income down to $60,500. According to the income tax table before this deduction was applied, your tax would be $12,445 but after the deduction was applied the tax would be $9,255. There is definitely a reduction in tax. That's how student loan interest deduction helped you to lower your tax bill.

Now it's time to apply credits toward that tax amount. In 2018 you listed your 10 year old daughter on your Federal Income Tax Return, and are eligible to claim Child Tax Credit of $2,000 . This credit reduces your tax from $9,255 down to $7,255 because the credit amount is subtracted directly from the amount of your tax bill. This is not the end of the calculation, of course, because most likely you've already paid some of this tax (or even higher amount of tax) through your pay check withholding, but this statement goes beyond our example the purpose of which is to compare how deductions are different from credits.

Deductions and credits help to lower your tax bill, both of them are without a doubt tax benefits.

If you have received a form 1095-A (Health Insurance Marketplace Statement), you might want to know how to read it.

Here is line by line explanations for your 1095-A form:

• Line 1 contains the name of the state where you enrolled in health insurance coverage.
• Line 2 is the number the Marketplace uses to identify the policy in which you are enrolled.
• Line 3 contains the name of the company that holds your policy.
• Line 4 contains your name or the name of someone in your household with health insurance coverage from the Marketplace.
• Line 5 may show only the last 4 digits of the social security number (yours or one of your household members with health insurance coverage from the Marketplace.
• Line 6 will be filled out if there is no Social Security number.
• Line 7 only contains information if advanced payments are made (if the insured person is married).
• Lines 10-11 - check start and end dates for accuracy. If you were enrolled for the whole year, you will see December 31st 2014 on this line and you must re-enroll for annual coverage each year.
• Lines 12-15 are self explanatory.

• Part II details information for each individual covered under the health insurance policy. If more than 5 individuals covered, you will receive additional 1095-A forms. If you enrolled into Marketplace coverage with one or more people who you don't list on your tax return (for example your children under age 26), then make sure they got a copy of this form. If during enrollment you specified that you would not list them on your tax return, then you will not see their info on this form and they will get their own form from the Marketplace.
• Part III information is there for you to use it when completing form 8962 (Premium Tax Credit) when doing your taxes.
• Part IIIA is the total cost of the monthly health insurance coverage premium. If you received advance tax credit payments, you may only be responsible for a portion of this total cost.
• Part IIIB - this amount is calculated by the Marketplace. It is used to determine your monthly advanced tax credit payments and premium tax credit you get on your tax return. Keep the Marketplace informed about all change to your coverage during the year so these numbers are accurate.
• Part IIIC - this is the amount of advanced credit payments that were made to your insurance company for all or part of your premiums. If no payments were made, this section will be blank.

Let's go on the Internet now and find Tax Hawk website. I prefer this website to others for a couple of reasons - the software is full of Help topics and anyone can use it to file their federal tax return for free, regardless of income level. To file a state tax return is extremely affordable too.

So, click 'Start Free Return' button and you will see new account screen with 'Create New Account' button. Once you click on it, the software will open up a template where you can provide your e-mail address which will become your user name, create password, create security questions, and click 'Create New Account'.

The next screen will give you an overview of what kind of support you can expect from this company - tax help, technical support for the website, etc. They give you a promise to take you all the way through tax preparation process.

You are done with this step and now you are ready to start filling out your tax return.