Filing taxes for the first time can be overwhelming, but it doesn’t have to be. In this beginner’s guide, we’ll walk you through the essential steps and information you need to know to successfully navigate your first-time tax filing. From gathering necessary documents to understanding deductions and credits, this comprehensive guide will give you the confidence to approach tax season with ease.
Filing taxes for the first time can be intimidating, but it doesn’t have to be. In this easy-to-follow guide, we’ll break down the essential steps and information you need to know to successfully navigate your first-time tax filing. From gathering necessary documents to understanding deductions and credits, this comprehensive guide will help you approach tax season with confidence.
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I remember doing my taxes for the first time. I was 22 and received a bunch of 1099s for doing some background work as an actor. Suddenly these fun jobs didnt seem that fun anymore. The forms were intimidating, and I didnt have the slightest idea what I was supposed to do with them. Filing taxes was a vague concept to me at the time.
Seven years later, Im pretty confident doing my taxes. I cant say I enjoy it (and who does?), but at least I know whats going on.
If youre here, youre probably doing online research on this scary topic. Welcome, make yourself comfortable and lets talk about how to do your taxes for the first time.
Do you need to file this year?
First things first, lets figure out if you even need to file. This will depend on your income, age and filing status. For instance, if youre not married, younger than 65 and your gross income was less than $12,400, you dont need to file this year. On the other hand, if that income was from self-employment, this would be considered a special situation, and youd be required to file your tax return.
Not sure if you need to file? The IRS has a convenient tool to help you determine that. Just answer a few simple questions.
What do you need to file your taxes?
If you need to file, youre going to need to gather your tax forms. They may include:
Income tax forms
These include W-2s, 1099s and other forms reporting any kind of income. Remember that the IRS wants to know about all of your income, including your side gigs, bonuses and interest income (such as from your high-yield savings account, which will send you a 1099-INT form if youve earned more than $10 in interest). For instance, Chase has sent me a 1099-INT this tax season because I earned a bonus after opening a checking account with the bank. Sigh.
Deductions
These are the things that can lower your tax bill and add to your refund. For example, if youre a student, you may be eligible for deductions—your school will notify you of qualifying costs by sending you a Form 1098-T. You can also deduct interest you paid on your student loan. Or, if youre a freelancer and working from a home office, you might get the home office deduction.
However, it might make more sense for you to go for a standard deduction. A standard deduction is a flat amount the IRS allows you to subtract from your income instead of adding up all of your deductible expenses. The amount typically changes every year to account for inflation. For example, this year, if youre single or filing separately, you can deduct $12,400—up $200 from last year.
To make sure youre deducting as much as you can—and that should be your goal, just keep your deductions honest—sum up itemized deductions and see if theyll turn out to be more than the standard deduction. If not, dont itemize, because the standard deduction will save you more money.
Note that if youre itemizing deductions, you need to be able to prove your expenses. This means being organized and keeping receipts so you can prove to the IRS your return is truthful.
Another awesome thing you might be able to do when filing taxes this year is claim your stimulus check if you missed one (or both). You can do so using a Recovery Rebate Credit on 2020 Form 1040 or Form 1040-SR when filing your federal tax return.
This is the first year that a lot of people I know that graduated college in 2019 will be filing their taxes independently and they usually werent eligible for COVID relief/stimulus checks previously since they were probably counted as student dependents despite being independent in 2020, my colleague Garrett Yarbrough shared with me. Now that theyre using 2020 tax records, I was able to retroactively claim the full stimulus checks and got them with my tax refund! They were separate deposits that werent added to my account at the same time.
See if you can be claimed as a dependent
Last but not the least, talk to your parents to see if theyre claiming you as a dependent on their taxes this year. This can be the case if you still live with them or they offer substantial financial help. Youll still have to file your taxes, but your parents will get certain tax benefits. Additionally, youll need to indicate that you may be claimed as dependent on someone elses return when you file.
Where to file your taxes
Now you know that doing your taxes boils down to adding up your income and deductions and hoping the latter will overweigh the former so that the government pays you (and not the other way around). Its time to file—this year, you have till May 17. If youre a Texas resident, youll have until June 15.
But what exactly is the process of filing your taxes? There are a few options.
Filing online
One of the most popular ways to do your taxes is to file online. With services like TurboTax and H&R Block, you can file for free if your tax situation is simple or pay for one of the premium packages to get access to extra features and help from tax specialists. You can also check free e-file options from the IRS.
Using these tools is comparatively easy. They guide the process by asking you simple questions and filling out your state and federal returns for you. You can even take pictures of your forms and upload them to have your info entered automatically.
Once youre done, the tool will calculate the maximum possible refund and file your taxes for you. See, its not that scary!
Filing with a tax pro
For the last couple of years, my taxes have been more complicated than Id like them to be. I moved states, switched jobs, changed my filing status, didnt receive my first stimulus check and so on.
I took a stab at filing online for free but ended up with many questions and a migraine. So, I just let someone who knows what theyre doing handle it for me; I made an appointment with a tax professional.
Theres nothing wrong with having a specialist do your taxes if your tax situation is a bit more complex. Of course, youll have to pay a fee, which varies by the tax preparer and complexity of your taxes. It can be a certified public accountant, attorney or enrolled agent—just make sure the person is qualified by checking their credentials. Many people (myself included) also use H&R Block for filing with a tax professional.
Prices typically range between $100 and $300. If youre looking for an affordable option, look into your local credit unions which may offer low-cost tax preparation services.
If youre still a student, theres another great option for you.
Many college and university campuses will provide tax preparation services for students with the assistance of other students who may be looking to gain experience working under a qualified supervisor in a tax lab, says Jeffrey Wood, CPA and partner at Lift Financial. These labs are usually located in the business departments, may be free depending on your institution, and may be worth looking into for tax filing assistance.
Filing your taxes by hand
Ive never met anyone whos still doing their taxes manually, especially when its their first time. Youd have to fill out Form 1040 or Form 1040-SR by hand and use a calculator to add up all your income and deductions. Then youd have to mail the form and wait for six to eight weeks for the IRS to process your return.
To be completely honest, I dont see a reason for anyone to choose this route. When there are services that allow you to file online for free, why would you go so old-school?
How to pay your taxes
Now to the not-so-fun part.
Often, you can expect a tax refund (meaning you overpaid in taxes the year prior and the IRS will return the money it owes you). But sometimes thats not the case, and youre responsible to pay your share.
There are a few ways you can do so.
Paying with your bank account
This is your best option because this way youll avoid any fees. Plus, the IRS will have your account information on file for refunds and awesome things like stimulus checks. People who pay directly from their bank account can count on the quickest process—and the fastest refund if youre owed one.
When you file with direct deposit, you can see your refund in as soon as one week, compared to filing with a check in the mail, which can take up to eight weeks, a Chase representative told me. E-filing with direct deposit is easy, you just need to find your account and routing numbers.
Not sure where to find your account info? Its easy. Most major banks will have it in your online account. As Ive mentioned, I bank with Chase and was able to find my account and routing numbers in the banks app in a couple of taps while at my appointment with H&R Block.
Paying with a card
You can also pay your taxes with a debit or credit card, but keep in mind that there will be fees involved.
If you ask me, it doesnt really make sense to pay with your debit card—just use your bank account linked to your debit card instead to avoid the processing fee and get all the benefits that come with the direct deposit.
As for whether its a good idea to pay with a credit card, it depends. Theres also a fee, but if youre working toward earning your sign-up bonus, it may be worth it.
I know some hardcore credit card enthusiasts who once overpaid their taxes to get a bonus, knowing the IRS would refund them. Do the math to see if that makes sense in your case and make sure you can pay off the debt right away to avoid losing money to your cards interest (unless youre getting a 0 percent APR credit card).
Apply for a payment plan
What if your tax burden is too big for you to pay?
This, too, happens. At my first writing job, I was considered an independent contractor even though I worked a regular schedule. That meant I was technically self-employed for tax purposes and received a 1099. Even after all the deductions, the taxes I owed still made me want to cry. There was no way I could afford to pay that sum outright.
Thankfully, the IRS offers various payment plan options. Like with any kind of debt, theres interest to pay on top of penalties. But in a pinch, a payment plan can be very helpful. Plus, it will help if youre owed a refund in the future since it will go toward your tax debt.
The IRS offers solutions for other situations too—for example, when you dont have a bank account or if your financial situation is really dire.
Dont stress about the IRS
Taxes are never fun and can lead to a bad headache. Still, dont let them scare you, even if youre filing for the first time. Use a reliable tax service or contact a tax professional if you could use some help—just make sure to check their credentials. You can do it, and welcome to the wonderland of adulthood!
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filing taxes for the first time
