First time filing taxes? Here’s what you need to know.
Tax season is something our parents and economics teachers should have taught us about but never did. Yet oddly, it’s one of the most important American chores adults have to take care of like clockwork each year. Screw it up, and you just might end up owing thousands of dollars to the government. Sort it out, and get a nice chunk of what feels like free money once a year.
Decide if you need to hire someone
If your tax situation is straightforward, you can do them yourself, maybe even for free.
There are circumstances under which you should hire an accountant to do your taxes. If you go this route, I recommend asking friends and family to refer you to someone, as there are countless horror stories about accountants butchering the tax returns of the innocent.
If you received unemployment benefits or earned large sums from self-employment, you might want to consider hiring an accountant, as opposed to navigating the quagmire of IRS forms all by your lonesome.
Don’t worry. We’re in this together
Find out if you’re required to file
You are required to file a tax return if you made $10,300 or more last year, assuming you are single and no one else can claim you as a dependent (see below). If you are a dependent, then you must file if you made $6,300 or more.
If you receive a 1099 form, usually from self-employment or independent contractor work, you must file if it states you made $400 or more on that single document.
Figure out if you’re claiming yourself
This sometimes involves a call to the parental unit. If they’re still claiming you, you can’t claim yourself. A parent might cling to your dependency status to milk their own tax return for all its worth. However, claiming yourself could also mean fattening your own tax return. Thus, you might have to do a bit of negotiating to figure out what’s best for you and your family. The general guideline states that if you pay for at least 51% of your own living expenses, you should claim yourself. Get the detailed version here.
Just because you’re not required to file doesn’t mean you shouldn’t
It’s likely that you can still receive a tax refund even if you aren’t required to file. This is true especially if you are claiming yourself and if you were a college or graduate student at any point during the last tax year.
Find out if you qualify for free tax preparation services
Depending on your income level, you may qualify for free tax preparation services sponsored by the IRS. This doesn’t just apply to tax software, either. You can hire an accountant to file your taxes at no cost to you.
If you made $31,000 or less this year, you qualify for TurboTax Freedom Edition. Do not confuse it with TurboTax’s Federal Free Edition. You will not find a link to the Freedom Edition anywhere on TurboTax’s site, though it’s a much more comprehensive software that covers 1089s, 1099s, and all sorts of goodies.
If you made $54,000 or less this past year (which you probably did if you’re under 30), you qualify for the IRS-sponsored Volunteer Income Tax Assistance (VITA) program. This means a real live accountant will help you do your taxes for free! To find one, you can look up a provider here.
Get your documents in order
A couple years ago, I forgot to report income from a job I worked at for only two months. This is a huge tax no-no that may result in you needing to file the dreaded Amended Tax Return. (Please do not do this to yourself.)
You should have the following documents on hand:
- W-2 forms from every place you were employed throughout the year (no matter how long you worked there).
- 1099 forms from any independent contractor work in which you made $600 or more. (Occasionally, incompetent companies may send you a 1099 when you made less than $600, and you will be required to report it if you made $400 or more.)
- 1089-T forms if you were a student for at least ½ time during the past year. This could get you my favorite tax credit, the American Opportunity Tax Credit (translation: $1,000 extra on your tax return depending on how much dough you dropped on tuition, loans included, if you were an undergraduate).
- Any additional documentation from stocks, bonds, and those other things I don’t have.
- Documentation of large donations, work- or volunteer-related expenses, vehicle registration, and more.
Be thorough and consistent
One mistake can mean getting audited by the IRS. This is the last thing you want. The number one reason for an IRS tax audit is not reporting all of your income. Make sure to review all documents a couple times before you submit. If you hire an accountant, never sign a blank tax document.
Choose the direct deposit option
Just do it. I got my tax return in less than 5 days this year and already blew most of it on my bills.
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