If you’re based in the United States and you generate an income or profit, you’ll inevitably find yourself dealing with the IRS at some point or another. Wherever you make a profit, there are going to be taxes to play. These are a compulsory contribution to the revenue of the state that you live in. But don’t feel alone. There are extremely few countries in the world that do not charge income tax. In fact, you’ll find that you’re able to count them on just one hand – Bermuda, Monaco, the Bahamas, Andorra and the United Arab Emirates (UAE). Of course, to pay your taxes correctly, it’s a good idea to have a good understanding who the IRS are, what they do and what they expect of you. Here’s some information to help you along the way!
What Is the IRS?
Established in 1862 by President Lincoln, the IRS is a U.S. Government agency that operates under the authority of the United States Department of the Treasury. It is responsible for collecting taxes from anyone who owes taxes. IRS itself stands for “Internal Revenue Service”. This agency is allowed to enforce tax laws against those who fail to pay their correct taxes by the annual deadline.
How Serious Is the IRS?
If you’re wondering what the scope of the IRS is, you should keep in mind that they deal with every single American’s tax returns. The agency processes roughly two hundred and forty four million tax returns each year and generates roughly $3.3 trillion in revenue. They deal with all tax returns, ranging from those submitted by individuals to larger and (often) more complex corporate returns. All too many make the mistake that due to the scale of the IRS’ job, they may be able to avoid paying their tax and go unnoticed. But this is far from true. The IRS has over 80,000 staff working to ensure that all returns are submitted accurately and on time.
What Do You Need to File?
There are a huge number of different forms and returns that you can submit to the IRS. The ones that you need to complete and file will depend entirely on you as an individual or the business you’re running. Different forms serve different purposes. It can all get a bit confusing, so the best way to file an accurate and timely return is to use Creative Tax Solutions. For now, here are just a few of the different forms that you might find yourself having to deal with.
- 1040 – the form you are most likely going to need to submit is a 1040. This is an income tax file. If your return is complex, you’ll need to submit “schedules”. If you are self-employed, you will also have to submit a schedule SE.
- 940 – if you run a business and have paid unemployment compensation to workers you’ve had to let go (this is increasingly common throughout the Covid-19 pandemic), you will need to file a 940. This will help you to report your annual Federal Unemployment Tax Act taxes. The unemployment tax systems will then provide funds towards this compensation.
- 941 – if you run a business that withholds income taxes, social security tax or Medicare tax from your employees’ paychecks, you will have to file a 941 form.
- 1099 – if you run a business and pay independent contractors to complete work on your company’s behalf, you’ll find that you need to report their pay to the IRS. This is where a 1099 form comes into play. This form allows the IRS to keep a track of what you have paid them and to ensure they pay the right amount.
These are just the basics of tax returns and just a few of the many forms you may need to file. Remember that you can make this process a lot simpler for yourself by using Creative Tax Solutions. These services will lift a weight from your shoulders!