To prepare your taxes on your own, you’ll need to assemble the correct paperwork. That includes all of those forms that have been coming in from various sources: – Form W-2: Wage and Tax Statement – Form 1099-NEC: Nonemployee Compensation – Form 1099-MISC: Miscellaneous Income – Form 8949: Sales and Other Disposition Assets – Form 1120: U.S. Corporate Income Tax Return
When you’ve calculated your total gross income, you can then subtract the relevant tax deductions and credits to your situation to reduce your gross income to your adjusted gross income and, finally, taxable income. From here, you then figure out how much taxes you owe based on the progressive set of seven income tax brackets used by the IRS.
Aside from having certain types of income, the IRS awards better taxation preferences. You have two levers to lower your taxable income: tax deductions and tax credits. Tax deductions work by reducing your taxable income on a dollar-for-dollar basis.