Since the passage of the 16th Amendment in 1913, income taxes and tax returns have been part of American life. The basic function of the tax return is to let the government know how much money you made over the past year. The IRS, Internal Revenue Service, also gets this information from employers and from financial institutions if you made money through interest or capital gains. The federal government in the United States has a graduated marginal tax rate, which means that people pay a percentage of their income on taxes. The rate depends on how much taxable income the person makes; so, as opposed to pay a flat percentage, people who make the same amount of money may pay more in taxes than someone else who makes the same pay.
The purpose of your tax return is to allow you to show the government what you made and what deductions or exemptions you have. Deductions include money that you can remove from your taxable income. Some retirement investments, mortgage interest payments, energy-savings renovations, and other expenses can be deducted from one’s income before calculating taxes. Exemptions are amounts of money that you can deduct based on certain life situations, such as having children.
Once you determine your deductions and exemptions, you have your taxable income. Using a tax rate chart, you should be able to determine the amount that you owe in taxes. The tax return is the document that you use to prove this taxable income and to demonstrate why you are paying the amount that you are.