The Internal Revenue Service receives tax returns from millions of Americans each year. They’re all first-time filers.
Whether you are a first-time or experienced taxpayer, dealing with the IRS can be intimidating. For newbies, the task also can be overwhelming.
But it doesn’t have to be. These eight steps can help novice taxpayers successfully make it through their first filing season and get some money back.
1. Get organized. From the start, establish an excellent organizational habits. Developing this habit now will serve you well for all your future tax filings. You should have received all the tax documents you must file. This checklist also helps you see what other information you need to file, such as charitable donations, work-related expenses, college expenses, and medical coverage costs. The bottom line is that you can only file once you get a W-2 form if you were a salaried employee. If all or some of your income came from contract work and gig jobs, you’d also want to ensure your records reflect what’s on the 1099 forms issued by those payers. The Internal Revenue Service gets copies of these forms, too, and the first thing it will do when it reaches your return compares the amounts.
Depending on your situation, you and your parents may need to decide who would benefit most from education tax breaks, for instance.
2. Talk with your parents. A young individuals should only use Form 1040 when filing their first tax return. Your parents may still qualify as dependents if you establish independence after graduating. This will impact taxes.
3. Decide how to file. Electronic tax filing is the best choice, no matter how experienced or new you are. Would you prefer to do your taxes or have them prepared and e-filed by a tax professional? Many first-time filers don’t have very complicated returns, so the do-it-yourself software route is worth checking, including Free File options. This filing season, seven tax software companies offer industry partnership offers 9 Free File programs to taxpayers, regardless of filing status, whose adjusted gross income is $73,000 or less.
If you want personal help filling out your first-ever return, turn to a tax professional. Make sure you choose a tax professional who best meets your tax needs. And be sure to thoroughly check out that person before turning over your tax details.
4. Don’t leave money on the table. You want to hand Uncle Sam only what is legally required. The importance of this cannot be overstated, even for veteran taxpayers. The most important thing for 1040 first-timers is to pay attention to all tax breaks, especially if their taxable income isn’t that high.
It is important to learn early that tax credits are more beneficial than deductions to reduce your tax bill. Deductions reduce your taxable income, but credits reduce any tax you owe. You may even receive a refund for certain tax credits, known as refundable taxes.
Here are a few, and too often overlooked, tax breaks first-time filers should explore:
- Earned Income Tax Credit, or EITC helps lower- and middle-income taxpayers. It’s one of those refundable tax credits.
- Student loan interest deduction. This deduction is worth up to $2,500 in interest payments on your higher education debt. Your eligibility for this deduction depends on your income. If you can claim it, it’s one of the above-the-line deductions you can take without having to itemize.
- Saver’s Credit. This tax credit could be worth up to $1,000 off your tax bill if you put money into a qualifying retirement plan. It also has income limits, but it’s worth checking into.
- Add to or open an IRA. If you qualify for the Saver’s Credit, make sure you get it by putting money into an IRA, either traditional or Roth. This year, you have until Tax Day, April 18, to open or add to the account. Also, consider which type of IRA to open. Roth accounts usually are the recommended retirement account for younger individuals since the earnings eventually are tax-free. But if you’re looking for an immediate tax break, you can again deduct what you contribute to a traditional IRA as another above-the-line deduction.
These tax breaks, and more, might be available to you this filing season if you work with your tax software or preparer.
5. Remember state taxes. Ten states do not charge individual income taxes, including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Sharing your earnings will be asked of you. This additional responsibility will be reminded to you by your tax professional and by your tax software. Your state’s tax department can provide you with a preview.
6. Take your time. For weeks, you’ve been preparing to file for your refund. When you rush to finish your taxes, you could make costly mistakes that could reduce your refund. There is a key to life, like much else. Spend enough time on your taxes to ensure that they are done accurately, but take your time. You can start your return, then step back for a while. Coming back to your taxes with fresh eyes can be a good move.
7. Don’t procrastinate. Conversely, you might feel like dealing with taxes later. It’s understandable. It’s normal to put off things like tax filing, especially if it’s your first time. Putting off filing for the last minute, April 18 this year, could worsen stuff if you run into problems when you finally get started. Be sure to find answers to your tax questions, or make an appointment with a tax preparer if you need help getting one.
8. Get more time if you need it. Lastly, you don’t need to panic. You have to deal with taxes yearly, and the idea of an IRS auditor asking you questions is frightening. Make sure you file correctly. Be bold and ask for more time. A filing extension extends the deadline until October 16 from April 18. There is also an option to submit Form 4868 electronically. Be sure to pay any tax owed when you request your extension or by April 18 at the latest if you owe any. Penalties and interest will be higher if you don’t.
It’s time to start filing your tax returns. Here are a few tips (and others on the January Tax Tips page) that will help ease your mind as you complete your first Form 1040.
We long-time taxpayers (and Uncle Sam) are thrilled you’ve joined our club, whose motto is tax misery loves company!
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