What tax preparation is and why you might need it

Tax preparation is the process of gathering your financial records, calculating what you owe or what you're owed, and filing the forms the IRS requires. You can do it yourself using software or paper forms, hire a tax professional to do it for you, or use a combination of both. The goal is to report your income accurately and claim deductions or credits you're may have access to to—which can lower what you owe or increase what you get back.

Most people need to file a tax return each year if they earned income above a certain threshold. That threshold changes by age, filing status, and type of income, so it's worth checking whether you're required to file even if you think you might not owe anything. Filing when you're may have access to to a refund is often worth doing, because the IRS won't send you money unless you ask for it.

Tax preparation can be straightforward if your situation is straightforward—you have one job, take the standard deduction, and have no dependents. It becomes more complex if you're self-employed, own rental property, have investment income, or support dependents. The more moving parts you have, the more useful professional help often becomes.

Key Takeaways

  • You must file a federal tax return if your income exceeds a threshold that depends on your age and filing status, even if you don't owe anything.
  • Tax software, free filing programs, and tax professionals each have different costs and work best for different situations.
  • Gathering documents like W-2s, 1099s, receipts, and proof of deductions before you start makes the process faster and more accurate.
  • The IRS important date is usually April 15, but you can request an automatic extension to October 15 if you need more time.
  • If you're self-employed or have complex income, a tax professional can often find deductions that save more than their fee costs.

Who has to file and when

The IRS sets income thresholds that determine whether you must file. For 2024, a single person under 65 must file if they earned more than $14,600 in wages. The threshold is higher if you're 65 or older, married, or filing as head of household. If you're self-employed, the threshold is lower—you must file if you had net earnings of $400 or more, even if your total income is below the standard threshold.

You should file even if you're below the threshold if you had taxes withheld from your paycheck or if you're may have access to to refundable credits like the Earned Income Tax Credit (EITC) or the Child Tax Credit. The IRS won't send you a refund unless you file a return claiming it. The filing important date is April 15 of the year following the tax year, though you can request an extension that moves the important date to October 15. Filing an extension doesn't extend the important date to pay taxes you owe—it only extends the important date to file the paperwork.

Documents and information you'll need to gather

Before you start, collect every document that shows income, deductions, or credits. For wage income, you'll need your W-2 forms from each employer—your employer must send these by January 31. For other income, you'll need 1099 forms: 1099-INT for interest, 1099-DIV for dividends, 1099-NEC or 1099-MISC for freelance or contract work, and 1099-G if you received unemployment benefits or a state tax refund.

If you're self-employed, gather records of all business income and expenses: receipts, invoices, mileage logs, and bank statements. If you own a home, collect mortgage interest statements (Form 1098) and property tax records. If you have dependents, you'll need their Social Security numbers and proof of relationship. If you made charitable donations, keep receipts or bank records showing the amount and the organization's name.

Keep records of any major life changes during the year: marriage, divorce, birth of a child, or significant medical expenses. These can affect your filing status, deductions, and credits. If you paid estimated taxes or had taxes withheld, gather those records too—they show how much you've already paid toward your tax bill.

Three main routes: software, professionals, or free programs

Tax software walks you through questions about your income, deductions, and credits, then calculates what you owe and generates the forms to file. Programs like TurboTax, H&R Block, and TaxAct range from free to $150 or more depending on how complex your return is. Most offer a free version for straightforward returns (usually one job, standard deduction, no dependents). If your situation is more complex, you pay for a higher tier. The software files electronically with the IRS, which is faster and more accurate than mailing paper forms.

Tax professionals

Free filing programs

What deductions and credits mean and how they lower what you owe

A deduction reduces the income the IRS counts as taxable. If you earned $60,000 and claim $12,000 in deductions, you only pay tax on $48,000. Most people take the standard deduction, which is a fixed amount that depends on your filing status and age. For 2024, the standard deduction is $14,600 for a single person under 65. You can instead itemize deductions—list out specific expenses like mortgage interest, property taxes, and charitable donations—but only if the total is higher than the standard deduction.

A credit is different: it directly reduces the tax you owe, dollar for dollar. If you owe $2,000 and claim a $500 credit, you owe $1,500. Some credits are refundable, meaning if the credit is larger than what you owe, the IRS sends you the difference. The Earned Income Tax Credit (EITC) and the Child Tax Credit are refundable for most people, which is why filing can get you money back even if you had no taxes withheld.

Common deductions include mortgage interest, state and local taxes (up to $10,000), charitable donations, and business expenses if you're self-employed. Common credits include the Child Tax Credit ($2,000 per child under 17), the EITC (up to $3,995 depending on income and family size), and education credits if you paid for college. Tax software and professionals know which ones you might may have access to for and will ask the questions needed to claim them.

How filing works and what happens after

If you use tax software, you answer questions about your income, deductions, and credits, review the forms it generates, and then file electronically. The IRS usually accepts e-filed returns within 24 hours. If you use a tax professional, they handle the filing for you and give you a copy of what was submitted. If you file on paper, you mail the forms to the IRS address listed in the instructions—this takes longer to process.

After you file, the IRS processes your return, which usually takes 21 days if you file electronically and claim a refund. You can check the status using the IRS "Where's My Refund?" tool on the IRS website, which updates every 24 hours. If the IRS has questions about your return, they'll send you a notice by mail. If you owe money, you can pay online, by phone, or by mail. If you're may have access to to a refund, the IRS will deposit it directly into your bank account if you provided that information, or mail you a check.

Keep a copy of your filed return and all supporting documents for at least three years. The IRS can audit returns from previous years, and having your records makes it much easier to respond if they do. If you used a tax professional, ask them to keep copies too.

Self-employment and business income

If you're self-employed—you work for yourself, freelance, or run a business—your tax situation is more complex. You must file Schedule C (Profit or Loss from Business) along with your regular return, and you owe self-employment tax, which covers Social Security and Medicare. Self-employment tax is roughly 15.3% of your net business income, and you pay it in addition to regular income tax.

You can deduct legitimate business expenses, which lowers your taxable income. Deductible expenses include supplies, equipment, rent for a workspace, internet and phone bills, mileage for business travel, and professional services. You cannot deduct personal expenses, even if you use them partly for business. Keep detailed records of all income and expenses—a spreadsheet or accounting software makes this much easier. Many self-employed people pay estimated taxes quarterly rather than waiting until April, because they don't have an employer withholding taxes from their paycheck.

If you're self-employed, working with a tax professional is often worth the cost. They can help you set up record-keeping systems, find deductions you might miss, and plan for quarterly payments. They can also advise you on whether forming a business entity like an LLC or S-corp would lower your taxes.

Common mistakes and how to avoid them

One of the most common mistakes is missing the important date. If you can't file by April 15, request an extension—it's free and automatic if you ask for it. Missing the important date without requesting an extension results in penalties and interest on any taxes you owe. Another mistake is not reporting all income. The IRS receives copies of W-2s and 1099s from employers and financial institutions, so unreported income is usually caught during an audit.

Many people claim deductions they're not may have access to to or forget to claim ones they are. Using tax software or a professional reduces this risk because they ask specific questions designed to catch both. Another common error is using the wrong filing status or forgetting to claim dependents you're may have access to to claim. If you're unsure about your filing status or who counts as a dependent, the IRS website has worksheets that walk you through the rules.

Finally, some people file before they have all their documents. W-2s and 1099s don't arrive until late January, so filing in early February gives you time to gather everything. If you file before receiving a 1099, you'll have to file an amended return (Form 1040-X) once it arrives, which creates extra work and delays any refund.

Frequently Asked Questions

Do I have to file if I didn't earn much money?

You must file if your income exceeds the threshold for your age and filing status, even if you don't owe taxes. However, you should file even if you're below the threshold if you had taxes withheld from your paycheck or if you're may have access to to refundable credits like the EITC or Child Tax Credit—the IRS won't send you a refund unless you file.

What's the difference between a refund and a credit?

A credit reduces the tax you owe. A refund is money the IRS sends you after you file, either because you had too much withheld from your paycheck or because you claimed a refundable credit that's larger than what you owe. A refundable credit can result in a refund even if you owe no tax.

Can I file my taxes myself if I'm self-employed?

You can, but it's more complex than a regular job because you must calculate business income and expenses, file Schedule C, and pay self-employment tax. Tax software can walk you through it, but many self-employed people find a tax professional worth the cost because they can find deductions and plan for quarterly payments.

What happens if I file late?

If you owe taxes and file late, you'll owe penalties and interest on top of what you owe. If you're may have access to to a refund, filing late just delays your refund—there's no penalty. You can request an extension to October 15 for free if you need more time.

How long should I keep my tax documents?

Keep copies of your filed return and all supporting documents for at least three years. The IRS can audit returns from previous years, and having your records makes it much easier to respond. If you're self-employed, keep business records for at least three years as well.