How To Do Taxes for the First Time
Anything you do for the first time can be a struggle, but with a little practice, you’ll likely find that doing your taxes isn’t the burdensome chore that some make it out to be.
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These days, you can find free information that can help make doing your taxes a breeze. The IRS website provides all of the information you’re likely to need, but many tax software providers offer free versions that are a bit more user-friendly and can at least help you get started. Here are some more tips to make the process run smoothly and to help you avoid some of the land mines that can come up as you do your taxes for the first time.
Last updated: Sept. 15, 2021
Do Your Research
If you’re doing your taxes for the first time, the entire process can seem overwhelming. Taking the time to do some research can not only help you file your taxes successfully but also relieve some of the stress you’ll no doubt be feeling. Remember that at the end of the day all you’re really doing when filing your taxes is reporting your income and taking the proper deductions so you can determine what you lawfully owe. For some filers, the process can actually be quite simple.
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Assemble All of Your Documents
Documentation is the key to any tax filing. On the income side, you’ll want to collect all of the legal documents that prove what you’ve earned during the year. Depending on what type of job you have, that typically includes W-2s and/or 1099s. You may also receive more obscure income documents like K-1s if you have any partnership interests. For claiming deductions, you’ll need to locate receipts showing what you’ve spent.
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Choose Your Software Provider
Even if you think you’re going to end up filing a paper tax return, it pays to use a reliable tax software provider to get through your return. Most of these software programs ask appropriate questions to ensure that you’re both reporting all of your income and taking advantage of all of the deductions that you can. Tax software programs also ensure that your math is correct and that your information gets reported on the appropriate forms, something that can be difficult to figure out if you’re filling for the first time.
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Verify Whether or Not You Are a Dependent
If you’re still receiving financial support from your parents, they may claim you as a dependent on their taxes. That entitles your parents to some additional tax deductions, but it also means that you must report this on your own tax return. Since this will affect how you file your return, you should check with them first to see how they are filing.
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Review Your Bank Statements for Deductions
One year is a long time to remember all of the deductions that you’re entitled to at tax time. Get copies of all of your bank statements and go through them line by line to make sure that you don’t overlook any valuable deductions. When reviewing your bank statements, don’t forget to include your credit card statements, as it’s likely that you’ve made some deductible transactions there as well.
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Don't Forget Your IRA Contributions
If you make a contribution to a traditional IRA, you might be entitled to a tax deduction. Although you’re supposed to receive a tax document from your IRA provider reflecting your contribution, this may be easy to overlook at tax time. In some cases, that document may only be sent to you electronically, so if you don’t keep close tabs on your email account and/or your online investment account, you may not even notice it. However, it’s important to get credit for this deduction if you’re entitled to it.
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Check To See If You Should File Jointly or Separately
If you’re a married couple, it’s usually in your best interest to file a joint tax return. However, in some cases, it may be more advantageous to file separately. One example may be where both spouses earn roughly the same amount of income; in some cases, combining that income and filing jointly may push the couple into a higher tax bracket. The best way to determine which way you should file is to use tax software, as it will easily guide you to the correct filing status.
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Include All of Your Side Income
If you’re like many Americans, you may have had to pick up some side work during the course of the coronavirus pandemic, as many businesses had to close at least temporarily. While your side gig may not be your primary job, the IRS still views it as taxable income. Be sure to report all of the income you generated over the year from any source, even if it is a small amount or you do not receive any 1099s from people or businesses that paid you.
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Don't Forget Small Interest Payments or Bonuses
Many Americans have small balances in checking or savings accounts that they forget they even have. This is particularly true if you have transferred money from one institution to another, as final interest payments often hit after the transfer and leave small balances in the supposedly closed account. If you’re earning interest on any account, no matter how small, you must report it when you file your taxes.
Another often-overlooked source of “income” is from account sign-up bonuses. For example, if you open a new bank account and receive a $200 cash deposit as a bonus, that’s usually considered taxable income, and it’s easy to forget receiving it.
More: 50 Ways You’re Throwing Money Away
File Electronically
Although you can still fill out a paper return and drop it in the mail to the IRS, most taxpayers nowadays file electronically. There are a lot of benefits to filing electronically, not the least of which is that you’ll know right away if the IRS accepts or rejects your return. Typically, your software provider will also perform a final review of your return before you file so you’ll know that your return isn’t missing any critical information.
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This article originally appeared on GOBankingRates.com: How To Do Taxes for the First Time
