If this is your first time filing your federal income taxes, you’re probably scared of doing something wrong.
The many forms and seemingly endless steps can make the process seem daunting, but if you need some information to get started, these 10 tips will help you nail your first tax filing.
1. Organize now
There’s a lot of information to know about filing your taxes. Start planning early so you can save yourself less hassle as the deadline gets closer. Some of the personal and general information you should gather together includes:
- Social Security Number, legal name, and birthdays for you, a spouse, or any dependents whom you wish to claim on your tax return.
- Bank routing number and account number. If you qualify for a refund you can have your check electronically deposited instead of waiting for it to be mailed. This is optional, but may allow you to receive your refund faster.
2. Know your filing status
There are different filing statuses. You can learn the difference in each status, and how it can help you in this article. The correct tax filing status can save you money, and the wrong choice may cost you. A few questions to consider:
- If you’re married, will you and your spouse file jointly or separately?
- Do you pay at least half of someone else’s housing cost and provide financial support for them for more than six months?
- Are you single and unable to file under any of the other five tax filing statuses?
- Can you be claimed as a dependent by another taxpayer?
3. Get the correct forms
Save yourself some time and gather all of the forms you need before getting started. The first step is knowing what forms you need, when to expect them, and actually getting them. Whether you choose to prepare your own taxes or go with a professional, you’ll still need these items. Here’s a quick list of some of the things you’ll want to grab. You can also use this printable tax preparation checklist.
- W-2 forms that show any income you earned in the past year and how much you’ve paid for your taxes on those earnings. (Be sure to get these from all of your employers if you had multiple jobs during the year.) Your employer is required to send them out by January 31.
- 1098-E forms if you made federal student loan payments during the year. You may be eligible to deduct some of the interest you paid.
- 1099 forms are a record of any money you received or were paid from anyone else besides your employer. (This might be interest that you earned from a savings account, income that you earned while you were self-employed or an independent contractor, a distribution from a retirement account, or social security payments.)
Here is a list of common itemized deductions that you may be able to include:
- Charitable contributions
- State and local tax deductions
- Qualified health care expenses such as those spent on the diagnosis, treatment or prevention of a disease
- Interest paid on your mortgage or student loan debt
4. To report or not to report? Income to include
Do you have to count your latest side gig? The rules around what the IRS considered income are complex—if you think that the money you earned from your side gig shouldn’t be taxed or reported in your tax return, we recommend consulting with a tax adviser before filing. Failing to report means you may get an IRS notification for not reporting your income correctly and could expose you to fines and penalties, including interest on late payment.
5. Student loan interest counts
There are at least some benefits to your student loans. (Besides the obvious – that education you paid for.) You may be entitled to a tax deduction on the qualified student loan interest that you have paid, as long as your income doesn’t exceed certain limits. Contact your lender for the 1098E, the required tax form, so you can get a tax deduction for the interest you paid on your student loans.
6. DIY alone or go with a pro
Choosing to file your own taxes or using a pro is a big question. It’s a decision you have to make and there are pros and cons to each. If your financial life is pretty simple you can file yourself, either on paper or electronically with e-file. (Keep in mind though, if you have IRS issues, you’ll have to deal directly with the IRS.) But, if you decide to go to a tax professional, keep a few things in mind on finding the right tax pro for you:
- Ask for recommendations from a friend or family member.
- What is their background or experience?
- Have they worked with first-time filers in the past?
- What is the cost to use their services?
7. Deadlines matter
Circle this date on your calendar now! Typically, April 15 is the tax deadline every year. In certain national emergencies, like in 2020 with the COVID-19 pandemic, the deadlines can shift. For 2021, the tax deadline is April 15th. However you should check with the IRS website to stay in the loop on this year’s tax deadline.
If you need more time to prepare your taxes, you can file for a tax extension. Before you decide to file for an extension, decide if it’s worth it. Remember that you’re still responsible for paying taxes owed by the deadlines. Extra time to prepare your taxes doesn’t delay the time to pay what you owe but it does keep you from paying a penalty for filing late.
If you do not pay your taxes for 2020 by April 15, you may be subject to late payment penalties. The IRS can hit you with penalties and interest for not paying by the deadline. You may be eligible for a payment plan, also referred to as an installment agreement, but there may be fees and penalties associated with paying out your taxes.
8. Double-check your info
Because mistakes happen. In this case, it could cause more problems than you’d imagine. Simple mistakes made on your Social Security Number, name, or date of birth can cause delays in processing your return at the IRS, which could then delay when you receive your refund check. You also want to double-check your bank account number. (You want your refund to go to the right account!)
9. The 411 on tax advances
Some tax preparation firms allow you to file your taxes and walk out with your refund the same day or within 24 hours. However, these “refunds” may actually be refund anticipation loans, where the money anticipated from your tax refund is loaned to you up-front before you receive your expected tax refund. When you receive your actual refund, the loan amount and any associated fees are deducted from your refund and paid to you. If you need the money before your refund arrives, be sure to carefully review the loan agreement and any fees involved first so that you can avoid unnecessary costs.
10. Plan your budget
Are you getting a refund, or do you have to pay the IRS? Decide now how you’re going to handle both situations. With a refund, develop a plan ahead of time for what you’ll do with the extra money. By planning ahead, you can maximize how you’ll spend the funds. If you think you may owe on your taxes, you should plan ahead and save for the payment.
Start preparing now to file next year’s taxes. If you snag a refund, that means you’ve overpaid the IRS (with your money). You may want to adjust your withholdings now, so that you’ll take home more money in your paycheck instead of getting a refund. If you owe the IRS, that means you didn’t have enough money withheld, so you should either increase your tax withholdings or pay the IRS extra taxes each quarter. Review your withholdings now to get a jump start on next year.
Although filing your taxes can be intimidating, you should use this time as a chance to learn more about your finances overall. Make any changes you need to make now, and you’ll go from tax novice to pro in no time.
This blog is not intended to provide any tax, legal, financial planning, insurance, accounting, investment, or any other kind of professional advice or services. To make sure that any information or suggestions in this blog fit your particular circumstances, you should consult with an appropriate tax or legal professional before taking action based on any suggestions or information that we provide.