State and federal tax forms include instructions on what you can or must claim.
Filing your federal income taxes is a necessary yet often frustrating task. For taxpayers who choose to fill out their own tax returns, many questions arise as to what to claim, which form to file and how much to pay or request as a refund. You can ensure that you cover all of the tax basics by understanding what items you can, or must, claim somewhere on your tax form.
Income
Claiming income takes up much of the space on your tax return, and it's essential that you claim all of your eligible income to comply with the tax code. Income includes the money you receive as wages from your employer. It also includes any money you earn through self employment or contract work, whether through your job or on the side. You also need to claim investment income, including stock dividends, profit from selling stock or bonds, bank interest and retirement fund distributions. Each source of income should send you a tax summary at the beginning of the following year so that you know how much to claim on your taxes.
Deductions
Each taxpayer can claim deductions that reduce their taxable income. When you file you'll have the choice between a standard deduction and itemizing your deductions. In both cases you deduct the eligible amount from your total income so that you pay tax on a lower amount. Itemized deductions allow you to deduct expenses such as charitable donations, business expenses, some types of loan interest and health insurance costs. If you have relatively few such expenses to claim, you can simply claim the standard deduction for your filing status, which reduces your taxable income by a flat amount without any need to prove your deductible expenses.
Credits
In addition to deductions, you can also save on taxes by claiming credits. Instead of reducing the income on which you pay taxes, credits reduce the tax you owe. This means that a credit can mean the difference between a payment and a refund. Credits generally apply to certain behaviors, such as the purchase of a fuel-efficient vehicle or a new home. Tax credits also apply to small-business owners and self-employed workers with low incomes. Claiming credits is based on guidelines that change each year to incentivize new types of behavior.
Exemptions
Another item to claim on your taxes are exemptions. Exemptions are based on the members of your household and, like deductions, reduce your taxable income. You can take exemptions whether or not you itemize your deductions, but you may only take one exemption for each financially dependent person in your household. For example, a single individual may only claim one exemption while a married couple with one child, filing jointly, can claim three exemptions. More children or dependent adults can raise the number of exemptions you may claim, with each exemption counting for a flat reduction of your taxable income. The amount of an exemption changes with the tax code each year but is listed on the federal income tax form you file.
