How To File Taxes For The First Time: A Complete Guide To All Your Questions

The first time filing taxes is a significant milestone for any young adult or freelance worker. You could count on your parents to handle tax filing in the previous years, but now it’s your turn to be responsible for your finances and file your taxes. This article will give you some quick tips on how to file your taxes for the first time and answer the most common questions. 

When do you need to file your taxes?

First, let’s figure out if you need to file taxes this year. This depends on your age, income, and filing status. For example, if you’re under age 19 (or under age 24 and a full-time student) and your parents cover more than half of your financial expenses, they can likely claim you as a qualifying child, and you won’t need to file taxes in this case. Another example is if you’re not married, younger than 65, and your gross income is less than $12,400, you also don’t need to file tax. 

Otherwise, if your income is from self-employment, this would be considered a “special situation,” and you’d be required to file your tax return. You can take a look at this guide for the minimum income to file taxes. 

how to file taxes for the first time
The IRS’s guide for the minimum income to file taxes

You can always check the IRS Tax Guide and answer a few questions to determine if you need to file.  

Important notice: Before filing your taxes, don’t forget to check with your parents to determine if they’re claiming you as a dependent on their taxes this year. This can happen if you still live with them or they offer substantial financial support. If you have enough income, you’ll still need to file your tax return, but your parents will get certain tax benefits, such as education tax credits and the Credit for Other Dependents. In this case, when preparing your return, you’ll need to indicate that you can be claimed as a dependent on someone else’s return. 

What documents do you need to file taxes? 

1. Personal documentation and income tax forms

To prepare for your taxes, you’ll need to provide your Social Security number, your income (and any freelance work) or unemployment income, and receipts of other income types (from real estate, royalties, trusts). You’ll also need to prepare a copy of last year’s tax return. 

Here is a list of tax documents needed before you begin: 

  • W-2s 
  • 1099s
  • Receipts of other types of income (from real estate, royalties, trusts)
  • Tax forms that report other income types

FYI: Keeping track of all your receipts can be a daunting task — paper receipts can fill up your wallet, desk, and drawers. In this case, consider using a receipt management app to store these papers digitally. See our suggestion for the Top Five Receipt Scanner And Organizer Apps 2021 to choose which one works best for you. 

Keep in mind that the IRS wants to know about all of your income, including your side jobs, bonuses, and interest income (such as from your savings account or investments), which the bank will notify you with a 1099-INT form if you’ve earned more than $10 in interest. So, don’t forget to keep track of your activities in the past year that might impact your taxes, such as: 

  • Changing jobs
  • Opening a new savings account
  • Selling stocks or mutual funds
  • Paying college tuition or student loan interest

2. Deductions

Deductions are factors that can lower your tax bill and can add to your refund. For instance, if you’re a student, you may be eligible for educational deductions. Your school will notify you if you qualify for these deductions by sending you a Form 1098-T. You can also deduct the interest you paid on your student loan. Or, if you’re a freelancer working from home, you might get the home office deduction. 

The most common tax deductions and credits for first-time filers are the following: 

Make sure you’re claiming as many deductions as possible, but remember to keep your deductions honest. 

You can try summing up itemized deductions and see if they’ll turn out to be more than the standard deduction. If not, don’t itemize since the standard deduction will save you more money.

Besides, if you itemize deductions, you need to be able to prove your expenses. This means being organized and keeping track of your receipts so you can prove to the IRS your return is legitimate. 

You can also claim your stimulus check if you missed one (or both). Check out the Recovery Rebate Credit on 2020 to see if it’s possible to claim this and file in Form 1040 or Form 1040-SR when preparing your federal tax return.

How to file taxes? 

After gathering all the necessary information, it’s time to start filing your taxes. But how to file taxes for the first time correctly? There are three options that you can choose from.

1. Filing taxes online

One of the most convenient ways to do your taxes is to file online. If your tax situation is simple, you can file your taxes for free using online tax services like TurboTax, H&R Block or the IRS’s free e-file options. You can also pay for premium packages to get access to extra features. 

These tools are comparatively easy to use. They will guide you through the process by asking you simple questions and filling out your state and federal returns for you. You can even take pictures of your completed forms and upload them to have your information entered automatically. Once you’ve finished, the tool will calculate the possible refund and file your taxes for you. 

2. Filing with a tax professional

It’s a great idea to have a specialist do your taxes if your tax situation is a bit complicated. You’ll have to pay a fee, which varies depending on the complexity of your taxes and the professionalism of the tax preparer. You can hire a certified public accountant, attorney, or enrolled agent. Just make sure the person is qualified by checking their credentials. 

Typically, the price range is between $100 and $300. If you’re looking for a low-cost option, you can look into your local credit unions and see if they may offer low-cost tax preparation services.

3. Filing your taxes manually

If you choose to file your taxes manually, especially when it’s your first time, it can be a bit complicated. You’d have to fill in Form 1040 or Form 1040-SR by hand and calculate all your income and deductions. After that, you’d have to send the form via email and wait from six to eight weeks for the IRS to process your return.

Though this is no longer a common way, especially when you don’t know how to file taxes for the first time, it can still be helpful for those who like to do some “DIY accounting” or simply want to practice the process. Keep in mind that if you choose to print and mail your return to the IRS rather than e-file it, you’ll have to think about the correct postage or stand in line at the post office.

The bottom line

Filing taxes, especially for the first time, is never easy and can lead to endless headaches. However, don’t let it scare you. All you need to do is track and manage your expenses properly, keep all necessary documents, and use a reliable tax service or contact a tax professional. 

The Shoeboxed Receipt Scanning & Expense Tracking app enables users to keep track of their expenses and receipts by turning paper receipts into digital data for tax prep purposes, accounting and bookkeeping. You can clear your wallet, desks, and drawers of paper receipts and have them precisely scanned with our OCR engine and human data verification features. We ensure that all of your paper receipts are legibly scanned, clearly categorized, and accepted by the IRS. 

Shoeboxed saves you a lot of time and hustle preparing for taxes, especially for the first time. Shoeboxed is now available on iOS and Android. Get your free trial now and be ready for the tax season! 

Why Are Bank Receipts Important to Every Business?

What documents are crucial to a business? Business plans, marketing strategies, or financial reports? The answer is all of them. How about receipts? Don’t forget about them because they are also important. 

There are three types of receipts that greatly impact a business: sales, expense, and bank receipts. Sales and expense receipts are necessary to calculate a business’s cash flow, while bank receipts contain detailed information about financial transactions conducted at banks.

There’s no doubt that many of you have heard about the importance of sales and expense receipts before, but not many people talk about bank receipts. Therefore, in today’s article, we’ll give you some insight into bank receipts and what makes them important to a business. 

What is a bank receipt?

We all know what a bank receipt is to some extent, but let’s break down what exactly we mean by a bank receipt before diving into why it’s important for every business.

Bank receipts are standard forms of documentation for most financial transactions. A bank receipt denotes all information related to the financial transactions conducted during your visit to a bank. Whatever your purpose to visit a bank is, either to deposit or to withdraw funds, you’ll walk out the door of the bank with a receipt. 

Typically, there are two hard copies of receipts given to both parties involved in the transaction. An account holder who conducts the transaction will get one copy while the bank keeps a similar piece. These days, many banks offer their customers a digital copy of receipts, by email or via text message, as an alternative. 

Bank receipt templates vary from bank to bank, but there are some essential pieces of information that every bank receipt includes. Mandatory details of a bank receipt include:

  • Bank account numbers
  • Account holder name(s)
  • Date of transaction
  • The total amount of the transaction

Sometimes a bank receipt includes detailed information of the bank teller who assists you with your financial transaction.

4 reasons businesses should keep bank receipts

1. Track cash flow

If you open a business checking account at a bank, you’ll receive a monthly bank statement from your financial institution. These statements summarize all your business transactions in a month with a detailed list of beginning and ending balances, as well as deposits and withdrawals. 

Generally, you’ll review your monthly bank statement and compare the transaction details with your bank receipts to keep track of your business’ spending. The bank receipts are also helpful when used along with the monthly bank statement to monitor any fraudulent charges or mistakes.

2. Solve a dispute

If there’s a dispute arising around a transaction, a bank receipt serves as trustworthy evidence. Whether a bank teller makes an error during a transaction or you accidentally miscalculate a portion of a transaction, bank receipts make it much easier to resolve disputes.

Imagine that you visit a bank and make a deposit of $50,000, but a bank teller accidentally deposits the funds into the wrong bank account. You’re actually unaware of this and leave the bank without knowing there’s a huge problem. When you realize the $50,000 deposit is missing from your account, sure it could lead to panic! 

Soon after that feeling is gone, you’ll start searching for an answer to that question. You’ll want to know what happened to your money, whether a mistaken transaction has been made, or a cyber fraud has occurred. You check the bank receipt and notice there’s an error in the bank account number. You then return to the bank to dispute the issue. The bank will use its receipt to confirm the transaction error. The dispute will peacefully be resolved. 

3. Keep the bookkeeping accurate and up to date

Bank receipts are generally a very helpful tool for your bookkeeping practices. Bank receipts are proof of all the financial transactions that impact your cash flow. Many banks recommend businesses balance their account books on a monthly basis. Therefore, accountants or bookkeepers will go over monthly bank statements and cross-reference this data with the bank receipts which have been gathered for a given month. 

Bookkeepers also use bank receipts for data entry purposes to track credit card payments, which can help you stay on top of your payments. With good bookkeeping practices, bank receipts can even help you improve your credit score over time.

If you’re a big business which has plenty of receipts, cross-checking data from bank statements and bank receipts manually can be labor-intensive. Many companies have switched to a digital bookkeeping tool which can do the same job as a bookkeeper but can be more efficient to some extent. 

A bookkeeping management software allows businesses to scan, store, organize and track receipts with ease. Bookkeeping software developed by Shoeboxed is an ideal tool for every business. Not only can you organize and track receipt data, but you can also use Shoeboxed to make expense reports for tax preparation or reimbursement.

4. Claim tax deductions

When you’re running a business, you must pay tax. It’s a legal obligation. There are several taxes that every company has to pay, and it’ll result in a loss of your profit. But, there’s also a tax deduction that lowers an organization’s tax liability. 

Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from their gross income to figure out how much tax is owed. The tax deduction rate varies from company to company, depending on whether you run the business as a sole proprietorship or use a legal entity such as an LLC or corporation. All in all, businesses often claim tax deductions to save some money. 

No matter if you’re a home business or big-name company, you’ll go through the same tax reduction process. The first step is to collect proof of purchase for your business expenses. Bank receipts which record all your expenses in a given year are solid evidence. Next, you just need to find the right tax form and fill in all the details. The last step is to submit the tax form, and you’re good to go.

The bottom line

Bank receipts are of no less importance than any other documents in a business. Bank receipts allow businesses to track their cash flow, solve disputes, keep the bookkeeping up to date and even claim tax deductions with ease! If you think they’re important and should be kept in a safe place with high accessibility, think of scanning and storing them on the cloud. Shoeboxed allows you to turn that awesome idea into reality. Try Shoeboxed today!

10 Reasons Why Bookkeeping Is Important To All Businesses

The main purpose of bookkeeping is to track the financial activities of a business. Alongside the growth of the business, bookkeeping becomes more complex with why the introduction of tax, assets, loans, and investments. Bookkeeping allows businesses to keep an up-to-date record of their revenue and expenses, the amount owed by the business, investors, and customers, and so much more. 

Obvious, detailed, and thorough bookkeeping is crucial for businesses of all sizes. This article will give you a detailed answer to the question “Why is bookkeeping important to all businesses?”

10 reasons why bookkeeping is important to all businesses

1. Optimizes your budget 

Bookkeeping is vital to any business because it makes budgeting so much easier. Bookkeeping helps you organize your income and expenses properly,  and makes it simple to review your financial resources and costs. A clear budget in turn creates a clear financial plan for your business. Then you can plan for future expenses and the anticipated resources needed to cover those expenses. 

See more: 9 Basic Types Of Bookkeeping That Every Bookkeeper Should Know.

2. Simplifies tax planning

Every business has to file their taxes at the end of the tax year. And for many accountants, tax season means scouring their desks to find missing paperwork. If this sounds familiar to you, then you may need to consider setting up a bookkeeping system. With an efficient bookkeeping process, you will have your financial information ready for tax season and your accountants will no longer need to spend hours on the tax filing process. Bookkeeping is important for your personal tax return as well. For business owners, a large part of their income comes from their business. To know their total annual income, they need to know what their business earned first. Having detailed balance sheets over time helps you predict your annual profits more accurately. 

3. Supports decision-making

The best decisions are informed decisions, and to make an informed decision, you need to have access to all available information. Bookkeeping tracks and compiles all of the information needed to support your financial decisions. 

An inaccurate understanding of your financial status and key performance indicators can lead you to make some erroneous decisions that could jeopardize your business. For example, in the short term, if you don’t understand your cash inflows and outflows correctly, you may experience overdrafts, late fees, and difficulty in making your payroll timely. In the long-term, if you don’t know your sales profitability, you may miss many opportunities to invest in the more profitable lines of your business, which leads to lower earnings. The same thing can happen to non-profit organizations. If you don’t know the true cost of your programs, you may make bad decisions on which programs to invest more resources in. Business owners can prevent these types of situations by maintaining accurate books and records. This will simultaneously optimize business operations as well. 

4. Tracks profit and growth

Bookkeeping provides financial information about your company through financial statements. Financial statements, including balance sheets, income statements, and cash flow statements provide information for a set period. For example, you can see if your business is profitable or not from the income statement. Together, all these statements take a snapshot of your business, allowing you to see how well the business has performed. 

Bookkeeping also helps to track business growth. Over time, you will collect months and years of data. You can use this data to observe trends and better understand your business progress and compare results across periods. By keeping regular financial records, you can map out your business goals more accurately and achieve steady growth. 

5. Manages and improves cash flow

Bookkeeping allows business owners to take control of their business’ finances. It draws a clear picture of how you spend money. As a business owner, you need to ensure that your customers’ invoices are paid on time. You can track when your customers and vendors pay their invoices through the routine records of revenues, expenses, liabilities, and receivables. You can also notice if you are paying your bills on time to avoid penalties. 

So, how does bookkeeping improve your cash flow? Bookkeeping provides information regarding your outstanding invoices, such as customer or vendor names, amounts, issued dates, and due dates. Business owners can use this information to implement better cash flow policies, such as shortening payment deadlines or adjusting the time of payment for vendor invoices. By doing so, you can increase the average amount of cash you have on hand at any given time. 

6. Greater focus on strategy

Disorganized books can weigh heavily on a business owner’s mind. Your bookkeeping should not be keeping you up all night. When your books are completed and in order, you can rest easy knowing that your company’s financial information is review-ready. You will then find your mind at ease and more focused on other elements of the business, such as planning and strategy. 

Tactical and strategic planning are at the core of business operations. As you are always thinking of growing and developing your business, bookkeeping will bring you closer to your short and long-term goals. You can use the information provided by bookkeeping to track the results of your strategy and adjust your goals accordingly. 

7. Maintains organized records

As your company’s financial records are important to a number of stakeholders – investors, lenders, customers, employees, etc, providing the information requested by these parties is vital to your ongoing operation. In this case, being organized is a skill that every business owner should be able to find information at any time. If you cannot provide records to the IRS, your business can face penalties and fees. If you don’t provide records that investors and lenders requested, it could result in the stoppage of cash flow and so on. Being disorganized with your books can compromise or even terminate your relationships with these parties. 

Furthermore, the last-minute stress of finding a crucial piece of paperwork can lead to missed deadlines and other errors. Businesses of any size can’t afford to make mistakes, and regular bookkeeping can help with that. By keeping an eye on your bookkeeping frequently, instead of leaving it to the last second, you will be able to maintain organized records and save a lot of time finding the information you desperately need. 

8. Meets law requirements

The law requires businesses to keep their financial records separate from the owner’s personal expenses. Failing to do this can lead to the termination of your business. 

Accurate financial records are essential to filing your tax return properly, and can also minimize the chance of being audited and/or incurring tax penalties. Businesses with bad bookkeeping practices tend to file late and may lack the proper documentation to support their filings. This can land you in deep trouble with the IRS. If you are audited and cannot support your income and deductions, the result can cost your organization a lot. 

9. Data analysis 

Bookkeeping matters because it helps with business analysis. Bookkeeping is a management tool used to analyze business performance. 

One of the most useful products of bookkeeping is the financial statement. Business owners should generate the financial statement regularly to know which lines of business are working or not working. Financial statements allow business owners to focus on their business’s strengths and improve on its weaknesses. 

Bookkeeping reveals the previous financial performance of your business. In order to make future plans, you need a good understanding of your situation. Bookkeeping will give you a clear picture of what does work and what does not. 

10. Makes it easier to report to investors

Investors and shareholders want to know the financial performance of your business so that they can determine the value of their investment. Let financial statements do the work. The combination of the balance sheet, income statement, and cash flow statement presents the value of the business. 

As stated above, the main product of bookkeeping is financial statements. Bookkeeping provides investors with up-to-date and accessible information. Then, investors will be able to make better, well-informed decisions, which is the ultimate purpose of bookkeeping. Bookkeeping is not only vital for current investors but future investors, too. Potential investors are more likely to invest in your business when you have organized information. Speaking of which, if you were an investor, would you invest in a company that did not have accessible and organized financial records? 

Final thoughts 

So now you have the answer to the question “Why is bookkeeping important?” It saves your money, time, and energy and helps you manage your business’s finances better. You can streamline the process even further by implementing a paperless bookkeeping system using Shoeboxed. Shoeboxed helps you clear your desks and turn your data into actionable information. Let us scan and organize your receipts, extract key data, create expense reports, and manage them in standard categorizations. Business owners no longer have to worry about keeping so many receipts, documents, and other accounting paperwork. Just leave it to experts. Contact us today and get ready to see how bookkeeping benefits your business. 

If you have any other reasons why bookkeeping is important to businesses, let us know in the comments!