Are you filing taxes for the first time this year? The tax deadline is more than a month away, so there’s still plenty of time to get up to speed on your tax preparation if you haven’t started already. If you’re feeling overwhelmed, don’t worry. Here are four tips for first-time tax filers just like you.
1. Gather all your paperwork
Before your start anything, you should gather your statements and paperwork. Here are some examples of what you should have in preparation for filing your tax return:
Form W-2, Wage and Tax Statement
If you’re an employee, it’s typical to receive a Form W-2, Wage and Tax Statement from your employer. This statement is an important piece of paperwork that you’ll use to retrieve information when filing your taxes. On this form, you’ll see a snapshot of the amount you earned in the previous calendar year along with how much payroll, federal and income taxes were withheld.
Form 1099-MISC, Miscellaneous Income
Are you an independent contractor? If so, you should receive a Form 1099-MISC, Miscellaneous Income from each job. As opposed to a W-2, a 1099 statement only shows how much you earned. Since no taxes are withheld when you’re an independent contractor, it’s up to you to calculate how much income taxes (and in some cases, self-employment tax) are due.
Not only will you be collecting statements that involve your job earnings, but you’ll also need the documentation for any other income that you may have generated throughout the year. Some examples of additional income are interest from savings accounts and investment earnings.
Paperwork for Tax Breaks & Deductions
If you want to maximize your possible tax deductions, make sure you gather the paperwork associated with them. For example, if you’re a college student with student loans, you should know that the interest is usually deductible on your tax return. Even if you’re not a college student, there are other ways to gain a deduction, like contributing to a charity. The contribution that you make to a charity is typically tax deductible. Be sure that you gather the records of your contributions. You’ll need them when filing your taxes if you want to get that deduction.
2. Talk to your parents and/or your co-parents
If you’re filing taxes for the first time, this is an extremely important tip. For example, if you’re a college student, your parents may want to list you as a dependent. If that’s the case, on your own individual tax return, you’re not allowed to claim a personal exemption. Simply put, a person/exemption can be claimed only once, and not on multiple tax returns.
Additionally, if your parents are helping with any college costs, they may want to claim that on their tax returns. Again, you’re not allowed to claim a tax deduction if it’s already been claimed by someone else. For example, your parents and you cannot claim the same education tax break on the same item.
In the same vein, if you are a parent filing separately from the other parent of your children, you’ll want to determine who will claim the children. Only one of you can claim the children each year. Whether you are splitting deductions with your own parents or the parents of your children, be sure to talk it out amongst yourselves or consult a tax professional to see what is the smartest way to file your individual taxes.
3. Figure out how you want to file
Before you file your taxes, there’s the whole question of how you’ll file. Technically, you can do it yourself, but since it’s your first time, you may want some guidance, even if it’s just for a little reassurance. You can go the traditional route and hire an accountant, but the hourly charge can get pricey. In the past several years, tax software has done well in the niche tax market for its use of technology to simplify the tax filing process.
4. Speak to a lawyer with tax experience
Whatever route you end up using to file your taxes, be sure that you feel confident about all the information you have given before you submit it to the IRS. And if there are any ambiguities or questions surrounding your tax return, you can find a lawyer with tax experience and ask any tax questions you may have. Sometimes we all need a little bit of reassurance that we’re doing things legally and correctly, especially if it’s filing your taxes for the first time.