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.
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:
- 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
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:
- Education credits (e.g., American Opportunity Credit and the Lifetime Learning Credit)
- Student loan interest deduction
- Standard deduction or itemized deductions
- Earned Income Tax Credit
- Home office deduction (if you are self-employed)
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.
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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!