Lesson 1: Introduction to Tax Preparation

Lesson 1: Understanding Tax Basics

Who Must File a Tax Return?
Individuals who earn income above a certain threshold are required to file a tax return with the IRS. This includes employees, self-employed individuals, and business owners who meet specific income levels or have other filing obligations such as claiming certain credits or owing additional taxes. Filing requirements can vary based on age, filing status, and income source, making it essential to know if you fall within these criteria.

What Does the IRS Do?
The Internal Revenue Service (IRS) is the federal agency responsible for collecting taxes, enforcing tax laws, and administering the Internal Revenue Code. Its primary functions include processing tax returns, issuing refunds, conducting audits, and ensuring compliance with tax regulations. The IRS also provides guidance and resources to help taxpayers understand their responsibilities.

Why Understanding Tax Basics Matters
Grasping the fundamentals of taxes empowers you to make informed financial decisions, avoid costly penalties, and maximize eligible deductions and credits. It helps you maintain compliance with the law while optimizing your tax situation, contributing to better long-term financial health. For small business owners and individuals alike, understanding these basics is critical for effective budgeting and planning.