Filing taxes on your own for the first time can be a daunting task, but it doesn’t need to be intimidating as long as you know what you’re getting into. Take a deep breath, read through these tips, and make your first filing process as easy and stress-free as possible.
The first thing you need to do is organize all the necessary documents. At this point, you should have received your W-2 or 1099 from your employer depending on your employment situation, and if you haven’t, contact your human resources department to ensure it’s on its way. Most tax professionals say one main problem they encounter with new taxpayers is a lack of proper documentation. Without the right forms, you’re pretty much at a standstill.
Before sitting down to file or heading to see a tax professional, you’ll want to gather any bank statements, receipts, invoices, brokerage statements if applicable, insurance documents, and the forms pertaining to your individual financial circumstances. Other important documentation includes forms showing any additional income you’ve received, like investment earnings or interest, and records of any sort of tax deduction you’re looking to claim including charitable contributions.
Deductions to Pay Attention To
Don’t miss out on money because of ignorance. There are multiple deductions and credits that first-time filers might qualify for. First, you have to understand the difference between deductions and credits. A deduction will reduce your taxable income, meaning you’ll have a smaller tax liability. A credit is then used to reduce your tax liability. Credits can be categorized one of two ways: refundable and nonrefundable. A refundable credit may increase your refund, and it can decrease the amount of money you owe. A nonrefundable credit may reduce your tax liability, but it won’t result in a higher refund.
Some of the basic deductions and credits first time taxpayers generally qualify for include local and state taxes, any child or dependent care that you’ve had to provide, job search expenses, earned income tax credit, and even charitable contributions made through your job and taken out of your paycheck. If you’re still a student and filing as an independent for the first time, there are many education-related deductions that you may be able to apply to your individual situation.
How Will You File?
You need to decide whether you will file on your own, with tax software, or with the help of a tax professional. Do this as soon as possible to ensure you don’t run out of time. Tax software is much safer than filing the old-fashioned way, and according to the IRS, 20 percent of people who file paper returns contain mistakes, while only 1 percent of e-filed returns have errors. There are free filing systems that you can utilize that are meant to be user-friendly, but sometimes the stress of making sure every “t” is crossed and every “i” is dotted can be overwhelming.
If you’ve got some out of the norm items and deductions to claim on your tax filing, or you’re finding the filing process to be too confusing, it might be in your best interest to use the help of a tax professional, at least the first time around. Use the services of a company like Community Tax who can help walk you through the process and make sure you don’t make any consequential mistakes during your initiation to taxes. If you haven’t received the documents you need or know you’ll miss the deadline date for whatever reason, be sure you ask for an extension from the IRS. Once you’re ready to pay what’s owed, make it easy on yourself by paying with a credit card through one of the IRS-approved payment processors like WorldPay US, Inc.
If you’re a recent graduate and have just started a job, or if you’re still in school but filing taxes for the first time as an independent, you might be daunted by the thought of filing on your own. Once you’ve determined that you need to file, following the aforementioned steps will ensure your initiation into taxpaying is as painless as possible. Keep yourself on the right side of the IRS from the get go by doing your due diligence and incorporating these money and time-saving tips into your filing experience.