How to file taxes for first timers
It’s tax season, which means now is the time to start thinking about how and when you’re going to file your taxes, so you can secure that refund. According to a TaxAct poll, more than a third of millennials rely on their parents to prepare their taxes. However, doing your taxes without your parents’ help has its advantages—you can better understand your finances, and you’ll know how to file your taxes in the future. Are mom and dad making you bite the bullet and file taxes on your own this year? Not sure where to start? Here are the steps you should take to file your taxes for the first time.
Determine your filing status
The first, and most critical step, is to determine your filing status. Your status defines your filing requirements, deductions, eligibility for credits, and your correct tax. It’s based on your age, marital status, and other factors.
Determining your filing status is vital because it impacts how much you owe the Internal Revenue Service (IRS) or how much of a refund the IRS owes you. If you’re unsure of your status, the IRS has a tool that can help you.
Gather necessary paperwork
You can’t file your taxes unless you have the proper paperwork. You need personal information, like a valid Social Security number, income and receipts, meaning any Social Security benefits or Unemployment Compensation, if applicable, as well as receipts from royalties, partnerships, or trusts.
Also, you need a W-2 form (or forms, if you had multiple employers) and a 1099 form, if eligible—for example, if you had any freelancing opportunities or side gigs. If you’re a college student, you might need a 1098-T form, which should be provided by your school. It includes information you’ll report to claim education credits, like tuition, scholarships or grants, and other related expenses. There are dozens of forms you potentially need, so here is a list of the most commonly used forms.
Decide how you want to prepare
You can prepare your taxes using online software or on your own. There are copious benefits to using online software—it’s very affordable, user-friendly, and fast. When you use online software, you can finish your taxes in as little as 30 minutes. Each software also has various tiers you can pick from based on your necessities and price levels.
Preparing taxes on your own can be beneficial, too. You save money, you can file anytime, and you gain a better comprehension of your finances. However, it leaves room for more error, so be patient and be thorough.
If you earn less than $69,000 per year, you’re eligible for Free File, which enables you to use popular tax software for free. Simply use the Free File Online Lookup Tool at irs.gov, and the eligible programs are listed.
From there, you have two filing choices. You can file electronically, known as e-Filing, or by paper. e-Filing is fast, reliable, and has a faster processing time, allowing you to receive your refund promptly.
Paper filing has its advantages, too. There are fewer security risks because you aren’t entering personal information online, meaning you can avoid the possibility of identity theft. It’s also simple—all you do is fill out a form. However, paper filing has a longer processing time—it could take up to six weeks to receive your refund.
Select a standard deduction or itemized deduction
Deductions are expenses incurred throughout the year that can be applied to your taxes. They lower your taxable income and vary by federal and state level. There are two categories: standard and itemized.
Standard deductions are the most prevalent. The amount varies each year and is based on filing characteristics. Standard deductions are the most popular because the amount is already set, so there is no need to calculate anything.
Itemized deductions are expenses allowed by the IRS that reduce your taxable income. When you itemize on your tax return, you can select from several deductions rather than taking a flat-dollar amount. You can deduct on medical expenses, property taxes, or charitable contributions—just to name a few.
If you’re having difficulty deciding if you want a standard or itemized deduction, you’ll need to do some math. Add up your expenses you wish to itemize. If the value of the expenses you can deduct is more than the standard deduction, then you should itemize. Itemized deductions take more time to prepare, but they could potentially save you money in the long-run. However, you must have proof of your expenses—it’s imperative to keep records and save receipts.
Other important tips
So, now that you have the basics down, it’s essential to keep a few things in mind. First, file only one tax return, no matter how many jobs you’ve held in the last year. Also, be sure your parents aren’t claiming you as a dependent—if you’ve been claimed twice, it could result in an audit by the IRS, meaning they’ll need to verify you’re reporting information correctly and not committing tax fraud.
Lastly, and most importantly, give yourself enough time. When you scramble at the last minute, you could make potential errors that you otherwise would’ve caught. It’s best to start prepping at least two months before the tax deadline of April 15th, 2020.
So, go ahead and start filing—that deadline will be here before you know it. Plus, the sooner you get started, the sooner you can score that refund.