For students or first-time filers, unless you’ve taken a tax preparation class, tax filing can be a bigger puzzle than trying to find that one missing sock in your bedroom. If you’re wondering how to file taxes, here’s a cheat sheet that might make it easier to get started filing your first tax return.
1. Do you have to file a tax return? Probably yes.
It depends on your income, filing status, age and other factors. It also depends on whether someone else can claim you as a dependent.
Even if you don’t have to file, you might want to do it anyway: You might qualify for a tax break that could generate a tax refund. So give filing some serious consideration if:
- You had income tax withheld from your pay
- You made estimated tax payments or had last year’s refund applied to this year’s estimated tax
- You qualify for education credits or other tax credits
2. Gather the information you need
Gather proof of income, expenses that might be tax-deductible or win you a tax credit, and evidence of taxes you already paid throughout the year. Here’s short list of what to round up:
- Social Security numbers for yourself, as well as for your spouse and dependents if any
- W-2 form, which tells how much you earned in the past year and how much you already paid in taxes on those earnings (if you had more than one job, you might have more than one W-2)
- 1099 forms, which are a record that some entity or person — not your employer — gave or paid you money
- Retirement account contributions
- Educational expenses
- Unreimbursed medical bills
- Property taxes and mortgage interest
- Charitable donations
- Classroom expenses
- State and local taxes you paid
- Last year’s federal and state tax returns (if this isn’t your first time filing and you’re just refreshing yourself here)
3. Knowing how to file taxes starts with the right tax forms
The form 1040 is the standard federal form people use to report their income, claim tax deductions and credits, and calculate the amount of their tax refund or tax bill for the year. There are six additional schedules that you may or may not have to tack onto that, depending on your tax situation and whether you want to claim certain deductions and credits.
4. Decide if you’re going to DIY or hire a pro
|It might be best to hire someone if…||You can probably use tax software if…|
5. Take advantage of free tax help
The IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) program provide free tax prep services generally to people who make $56,000 or less, have disabilities, are older than 60 or speak limited English. This can be a huge money-saver if you qualify. To find locations in your area, go to irs.treasury.gov/freetaxprep.
6. Start preparing early
An important part of learning how to file taxes is to start the tax-filing process in advance.
- The IRS charges interest on whatever is outstanding if you don’t pay your tax bill in full by the April deadline. The annual interest rate is usually around 5% or 6%.
- The IRS may also sock you with a late-payment penalty of 0.5% per month, with a maximum penalty of 25%.
- On top of all that, there’s a late-filing penalty if you don’t file the tax return itself on time. That runs 5% of the amount due for each month or partial month your return is late. The maximum penalty is 25%.
7. Do something about that refund or giant tax bill
Learning how to file taxes also means learning how to manage your tax situation.
- If you end up having to write a giant check to the IRS and/or the state in April, it may be because you’re having too little tax withheld from your paycheck during the year.
- Likewise, if you end up getting a giant refund in April you may have had too much tax withheld from your paycheck during the year. Refunds may seem great, but think about what life might’ve been like if you’d had that money all year instead for groceries, gas and car repairs, monthly credit card payments or other bills you have to pay.
Avoid the big swings by adjusting your W-4 — the form that tells your employer how much tax to withhold from each paycheck. Y
Finally, if you’ve figured out how to file taxes and you expect to get a refund, file your tax return online and have your refund deposited directly to your bank account if you want a faster turnaround. The IRS says it will issue most refunds within 21 days, but many filers receive federal refunds within 10 days.
Let Uniamericainc.com help you get started with your tax filings today!