How to File Taxes for the First Time: Navigating the Tax Season
For those looking to understand how to file taxes for the first time, the prospect can be nerve-wracking. There are a lot of numbers to consider and many tax forms to fill out correctly. Remember, if you made $12,000 or more in 2018 (or double that when filing jointly), then you need to file a 2018 tax return by April 17, 2019.
Learning all of the details behind filing taxes can feel overwhelming, but the good news is that there are many resources you can use to help. Here's what you need to know if you're filing taxes for the first time.
Preparing for Filing Ahead of Time
It doesn't matter if the filing deadline is months away — it's important to start early:
- Collect Important Tax Documents: Employers must send W-2s, 1099 forms, and other important tax documents at the beginning of each year. However, most people are on the lookout for their W-2 forms which are due by January 31st. Watch for these docs in the mail even if they look like copies of each other. They provide necessary information for filling out your tax forms. You can get forms for many types of income in the mail or email.
- Know Your Tax Bracket: This helps you to understand what tax rate to expect. Your tax rate increases based on the amount of income you make.
- Calculate and Report Tips: Do you work at a restaurant or other business where you receive tips from customers? If you personally make more than $20 per month in tips, report these as well.
- Understand Your Dependent Status: For your first few tax filings, you may still be a dependent under your parents. Some facets of tax requirements change based on whether or not you're a dependent.
- Refer to Tax Software: Tax software like Tax Act make filing taxes much easier, especially when you are still learning your way around. Whatever software you choose, make sure you include federal and state filing options.
Know Your Basic Tax Status
Tax status matters depending on whether you're married or single. Are you filing jointly, or separately? Knowing the details of your current life status can help you maximize your refund. Keep in mind that student loan interest is usually deductible, so keep those loan forms.
Finally, if you bought a car, house, or other major purchase, be sure to keep track of all of these expenses. Consult your bank account records to boost your memory.
Understand How Form Names Work
For new filers, one of the most confusing parts of filing taxes is all of the form names (currently being simplified via new laws). It's important to know the difference between labels because you may need to find or use a specific form to fix a problem or find an answer.
- 1040 is a class of forms that include individual tax returns. This class includes a number of specific forms. 1040-ES is for estimated taxes while 1040X is for amended tax returns.
- W-2 forms are wage report forms used by employers and include unique versions for different areas such as W-2GU for Guam.
- 1099-Misc is a form used to report payments for prizes, freelance employees, royalties, and similar payments.
It's smart to start early — spend plenty of time filling out taxes for the first time and learning as you go. However, if you're self-employed, have recently sold stocks, or are just worried about making mistakes, then going to a professional is a great idea.