If you’re intimidated about filing your taxes with the Internal Revenue Service for the first time, here’s the good news: It’s only going to get worse from here. What you’re doing now is nothing compared to filing when your life is far more financially complicated, and you have a house, a spouse, kids and perhaps some investments or additional property to report.
OK, pointing that out probably didn’t make you feel better. But if you are new to filing your taxes, take a deep breath and try these tips.
[See: Answers to 7 Burning Tax Questions.]
Decide who is doing your taxes. The first thing you need to figure out is who will be doing your taxes? Will it be you? Or will you purchase software or hire a human being to prepare them?
You can do them yourself, and if you don’t have a complicated financial picture, there’s no particular reason you shouldn’t do them, says Micah Charyn, a Nashville, Tennessee-based financial advisor and vice president with FTB Advisors.
“Don’t waste additional money on having someone do it for you — even if it’s at a discount. … If it’s your first time doing taxes, consider doing them on your own,” he says.
On the other hand, you might figure, why not get some help?
Steven Warren, a certified public accountant and an MBT (master of business taxation) at Schechter Dokken Kanter in Minneapolis, recommends the better-be-safe-than-sorry approach.
“Even for the easiest returns it is usually best to use tax preparation software,” Warren says. “If not using software, be sure to check your math and that you are carrying numbers properly from one schedule and form to the next.”
Charyn does also speak highly of tax preparation software programs. Many, he says, are “simple and efficient.”
Obviously, if you’re using an online service in this day and age of fake websites and con artists just dying to steal your identity, use common sense and stick with companies you trust, or do research if it’s a business you’ve never heard of. Some of the bigger names include Intuit’s TurboTax, H&R Block, TaxSlayer, TaxAct, FreeTaxUSA, eSmart Tax and Credit Karma.
[See: A Checklist for Last-Minute Tax Filing.]
The forms you’ll need. If you do your own taxes, you can usually find the forms at the library or post office. Assuming you don’t have children, you’ll probably want Form 1040EZ. If you can look at the W-2 form your employer provided you and copy those numbers down (how much you earned and what taxes were withheld) on the 1040EZ, and you know how to do basic tasks like spell your name and sign it, then, well, this should be a breeze.
If you’re filing jointly with a spouse, you also may want to file with Form 1040EZ. But if you have some tax credits that you want to take advantage of, you may want Form 1040A. If you have deductions — maybe you’ve started a side business or gave away a lot to charity in the last year — then you’ll want the much longer and more detailed Form 1040. If you’re self-employed, you’ll likely have deductions and will want Form 1040.
Gather your other paperwork. Along with your W-2 or W-2s, if you’re filing with a spouse, Emilee Morehouse, a Seattle-based marketing manager for SimpleKeep, an online bookkeeping and tax services company for businesses, suggests you gather any other documentation you might need. That would include:
— Social Security numbers for you, a spouse or kids
— 1099 Forms, which you’ll only need if you or a spouse did some contract work on the side and earned more than $600
— Investment income information
— Unemployment income, if you have any to declare
Don’t get tripped over dependents. If you’re filing for the first time, presumably you’re young, and any money you’ve earned thus far has been reported to the IRS by your mother or father.
“It’s really important to check with your parents to make sure they’re not claiming you as a dependent. If they are, you’re not permitted to take your own exemption on your tax return,” says Brian Ashcraft, who is based out of Virginia Beach, Virginia, and is the director of compliance at Liberty Tax Service, a franchised tax preparation service.
And if you do take the exemption despite being claimed by your mother or father as a dependent, you or your parents, or all of you, could face penalties and interest charges from the IRS, Ashcraft says.
[See: 14 Important Personal Finance Dates to Mark on Your Calendar.]
Don’t assume you don’t have deductions. Sure, your life may not be very complicated, but you might have deductions, especially if you’re a recent college graduate. And deductions, as you probably know, can be deducted from your taxable income, lowering the amount of money you owe.
“When you start making payments on your student loan, the interest earned can be claimed as a deduction in your taxes. That will often significantly reduce the amount of tax owed next year,” Charyn says.
Don’t assume you don’t have credits. Again, maybe your financial life isn’t complex, but there still may be credits out there you’ll want to nab.
“If you’re 18 or older and not a dependent or full-time student, you could be eligible for the Saver’s Credit, which is two tax credits in one,” Ashcraft says. “The credit for low-to-moderate-income employees allows you to save for retirement and get a tax credit for doing so. In short, you put your money into an IRA or 401(k) and reduce your taxable income, then you also get a tax credit for your retirement contribution. You can make an IRA contribution up until the tax filing deadline.”
Wait before you send it off. Look over your form for mistakes. It happens enough to people that the IRS has a webpage devoted to common errors that taxpayers make. One big one that you don’t want to make: if you’re due a refund and asking for it to be direct deposited, putting down the wrong routing and account numbers for your bank.
And if you are getting a refund, Ashcraft points out that you may want to visit your employer’s human resources department to change your withholding for a more accurate tax payment every month.
“After all, a refund is just what it sounds like — the government giving you back money you’re owed because you overpaid,” Ashcraft says. “Why wait a whole year to get your money?”
More from U.S. News
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10 Smart Ways to Spend Your Tax Refund
Tips for Filing Taxes for the First Time originally appeared on usnews.com
