Credit Karma Guide to Filing Your Taxes for the First Time
Filing taxes doesn’t have to be scary. With a little advance preparation you can stay on top of the paperwork, maximize your deductions and file with confidence.
Filing taxes can be a tricky process, and if you’ve never done it before, it can be especially intimidating. But with a little preparation and some simple tools, you can get it done — maybe even more painlessly than you think.
This guide will walk you through everything you need to know, including setting yourself up for success with good organization throughout the year, understanding paperwork and common deductions, and, finally, filing your return (and hopefully getting that coveted tax refund). Take a deep breath, read on, and get ready for your simplest tax season imaginable.
The big picture
Why do you have to file tax returns?
If you have a steady job with an employer, you’re actually probably already paying taxes each time you get a paycheck. Your employer withholds a certain amount from every paycheck to pay income tax based on what you’re likely to owe. If you’re self-employed, you should have (hopefully) paid quarterly taxes throughout the year. However, many factors influence what you’ll potentially owe, so when tax time rolls around, it’s possible you’ve overpaid or underpaid.
Filing your tax return is what calculates the total taxes you owe the government; the amount of deductions, credits, or tax breaks you qualify for; and how much you’ve already paid. If it turns out you’ve paid more than you owe, you’ll get a tax refund to repay the overage. If you haven’t paid enough, you’ll have to pay the difference.
Who must file taxes?
Whether you need to file a tax return comes down to your tax filing status. Your tax filing status takes into account your income, age, marital status and whether you qualify as a head of household.
If you earned an income over the past year, it’s likely you’ll have to file a tax return, even if you don’t end up owing any taxes. But especially if you’re a first-time filer, it’s good to confirm whether you need to file.
You may not need to file a tax return if your income was below a certain threshold. For 2017, use the chart below to see if you need to file.
|Filing status||Age at the end of 2017||You should file a return if your gross income was at least …|
|65 or older||$11,950|
|Married filing jointly||Under 65 (both spouses)||$20,800|
|65 or older (one spouse)||$22,050|
|65 or older (both spouses)||$23,300|
|Married filing separately||Any age||$4,050|
|Head of household||Under 65||$13,400|
|65 or older||$14,950|
|Qualifying window(er) with dependent child||Under 65||$16,750|
|65 or older||$18,000|
There are a few caveats, so if you have any questions, consult a tax professional or take a look at IRS Publication 17.
As a first-time filer, you may also want to check whether anyone (for instance, a parent) is claiming you as a dependent on their tax return. If a parent is claiming you as a dependent, you still may need to file taxes, but you will not be able to claim your own personal exemption.
When should you file your taxes?
Timing is important for taxes. You should start receiving important tax documents from your employer by January or early February of each year, and you can start filing your taxes soon after.
The deadline to file your tax return is usually April 15 or soon after, depending on weekends and holidays. If you’re unable to file by this date, you can apply for a six-month extension to file your tax return, but you will still have to pay your taxes by the April filing deadline.
How can you pay taxes before filing your return?
It can seem like an oxymoron that you get an extension to file your taxes but not to pay them. What’s up with this? How are you supposed to know how much you owe if you haven’t filled out your tax form yet?
“The short answer is that the government wants its money when its due, even if you are not sure the exact amount you owe,” says Geoffrey Kulik of Sterck Kulik O’Neill accounting group. “So you need to estimate what you will owe and pay that amount by the April tax deadline.”
If you’re able to, the easiest thing is likely to file your taxes on time.
“Most people paying taxes the first time have simple sources of income and will know the numbers for their return by the beginning of February. So these people won’t need an extension,” Kulik says. “But if you do have sources of income like partnerships where your income will be reported to you too late for you to file in April, you simply have to make an intelligent guess on your tax bill. We help many of our clients estimate their tax bills every year.”
Setting yourself up for success
Even though your tax return is due in mid-April, you can do a few simple things throughout the year to make the process much easier for you.
Keep good records
Tax time can already feel stressful — the last thing you want is to be frantically searching for employment documents and crumpled receipts. Or worse, forgetting something important and making an error on your return.
Thanks to modern technology, keeping your financial records safe and organized has never been easier. To make tax filing easy, save digital records to a folder stored on a cloud service like Dropbox or Google Drive. When you get paper documents you need to save, you can use your phone to snap a photo or scan them and save the newly digitized documents into the same folder. When tax time rolls around, you’ll have everything you need in one place.
Which documents should you save?
You’ll definitely want to save any official tax documents you receive throughout the year, like W-2s and 1099s. You’ll also need to save records of compensation received for any type of work not captured in a W-2 or 1099. This can include any money you’ve made for contract work or even selling items on an online marketplace like eBay.If you get tips at your job, don’t forget to keep track of those too.
In addition to money earned through employment, you’ll also need to keep track of any documents related to property you own or monetary gains or losses you’ve made through investing.
To make sure you’re getting the most deductions possible, you’ll also want to save paperwork for any out-of-pocket tax-deductible charitable donations, business expenses (including job hunting expenses) and medical expenses.
While you do have until mid-April to file your tax return, it’s a good idea to get started as soon as you receive your essential tax documents. This helps give you more time to resolve any issues that may come up over the course of preparing your return, or to seek help from a professional tax preparer if your situation seems to warrant it.
Even if your tax return is simple, it never hurts to file early. If an identity thief has access to your name and Social Security number, it’s possible for that person to file a fraudulent tax return and receive your tax refund. Victims of this type of theft often only find out about the fraud when they file their own tax return and discover someone else has already submitted one.
Filing your tax return early is no substitute for protecting your personal data, but it can help you reduce the risk of this particular type of fraud.
Understanding the paperwork
You can find all the federal tax forms you need on the IRS website, and links for all state tax forms here. Here are some forms that may be most relevant to first-time filers.
This is the form that you’ll file as your annual income tax return. Multiple versions of the 1040 are available, and which one you should file will depend on factors such as whether you’ll itemize deductions, the type of income you have, how much you made last year, and your filing status. Many first-time filers who have very simple income sources and no dependents can file the 1040EZ, the easiest version of the 1040 to complete. You can learn more about which form might be right for you by visiting the IRS website.
Schedule A, Form 1040
If you decide to itemize your deductions instead of taking the standard deduction, you’ll need to file Schedule A along with your Form 1040. This form will help you add up your available deductions.
Schedule C, Form 1040
If you work for yourself or are the sole proprietor of a small business, you may need to fill out a Schedule C, which reports the profits and losses of your business.
For many people, the information on their W-2 is the foundation of filling out their tax return. Your W-2 tells you how much money you earned and how much money was withheld to pay for federal and state income tax, Social Security and Medicare.
By early February, you should receive a W-2 from each employer who’s paid you a salary the previous year. Note that you may have multiple W-2s, but you’ll still only file one tax return.
The W-4 form is actually a form you fill out when you start a job. You give this form to your employer to help the company figure out how much tax you’re likely to owe (and thus, how much to withhold from your paycheck).
It’s important to keep your W-4 updated when major factors in your life that affect your taxes change. The IRS recommends filing an amended W-4 with your employer within 10 days of a significant life event like getting married or divorced, or having a baby.
1099-MISC or 1099-K
You should receive a 1099-MISC or 1099-K form for any independent contract work you’ve done that’s paid you more than $600. This form only lists your earnings, as no taxes were withheld at the time the money was paid out to you. This means you’ll have to pay any and all taxes due on these earnings at tax time, potentially including Social Security and Medicare taxes.
If you’re unable to file your taxes by the deadline, use form 4868 to apply for an extension of time to file. While this extension gives you more time to file your taxes, it does not give you an extension to pay your taxes. However, if you need more time to pay your taxes, you may be able to request a payment plan from the IRS.
This form covers any interest you may have paid on student loans over the past year, which could potentially set you up for a deduction. You should receive these from your student loan provider.
Deductions, credits and exemptions are all terms that refer to ways you can pay less in taxes, though they can work in slightly different ways. Deductions or exemptions reduce the amount of your income that you pay taxes on, while credits directly reduce the amount of tax you owe.
A few deductions and credits you might consider include:
- Personal exemption: A reduction on the amount of your income that is taxed. Most people can claim the standard deduction for themselves and for any dependents. Note that if someone else is claiming you as a dependent, you will not be able to claim your own personal exemption.
- Standard deduction: A reduction on the amount of your income that is taxed. Note that you cannot claim the standard deduction if you are also claiming
- Earned Income Tax Credit: A credit for some working people with low to moderate income. For reference, for 2017, single people without a child must have made less than $15,010 over the course of the year to apply. See if you qualify for the EITC on IRS.gov.
Younger taxpayers should also be aware of some other possible deductions, experts say.
“Moving expenses should also be on the radar when someone lands a first job or changes jobs,” says Nate Smith, director at CBIZ MHM’s National Tax Office. “Certain moving expenses are deductible when a new principal place of work is at least 50 miles farther from the former residence than was the former place of work. For a first job, the move need only be at least 50 miles from the former residence. In either case, the taxpayer must remain a full-time employee for at least 39 weeks during the 12-month period following the move.”
And it’s never too early to look ahead to retirement.
“Tax-deductible contributions to [traditional] IRAs can be as high as $5,500 for younger taxpayers,” Smith says. “Assuming the IRA will serve as the primary source of income in retirement, the deduction can be a very good deal, because of the tax rate arbitrage in play.”
You can find a full list of tax credits and deductions on the IRS website.
One thing to note: especially as a first-time filer, it’s likely that the standard deduction may be worth more than any deductions you might qualify for — especially if you’re single with no dependents, earn an average income and don’t own any property.
Preparing and filing your tax return
Once you’ve got the forms you need and all your documentation in order, preparing and filing your tax return can actually be pretty straightforward.
To make things easier, use an online tool. It’s a simple experience that will walk you through preparing and filing your federal and state tax returns by asking you questions about your life over the past year. Just have your paperwork at the ready and answer the questions, and filling out your tax return can be easier than you imagined.
If your taxes are particularly complicated, though, you might want to investigate another solution. It may make sense to find a professional tax preparer who can help you out.
“Whenever you have multiple deductions (home office, charitable, job related) or have many sources of income, there is definitely a need for a tax preparer,” says Carlos Dias Jr., a financial adviser with specialized tax knowledge at MVP Wealth Management Group and Excel Tax & Wealth Group. Costs can vary, so be sure to ask for rates before you choose a tax preparer. “Each tax preparer works differently, but if your tax return doesn’t have multiple schedules and isn’t as involved, it can range from $75 to $185 or more,” Dias says.
Since you’ll be trusting any tax preparer with your personal information, make sure to do your homework before selecting the tax professional you want to work with.
And don’t forget that tax preparers come with different specialties and skill sets.
“The best ways of finding a good professional tax preparer is to ask your friends whose financial situation is similar to yours,” says Kulik of Sterck Kulik O’Neill. “For example, if you’re young and your first job is working for a start-up, you’d want recommendations from coworkers who are also dealing with stock options and other types of incentive compensation. A tax professional who is familiar with options or gig economy issues is going to be more in tune with your needs than a professional whose clients are mostly older people who are living off their investments in retirement.”
Congratulations! You should be feeling pretty confident about your tax know-how by now. By keeping your documents safe and organized in one place; keeping good records of income, deductible expenses, and other major life events; and filing your tax return in a timely manner, you might be surprised by how straightforward filing taxes can be.
To increase your tax savvy even further, here’s some additional reading:
How to avoid common tax filing mistakes
Tax filing errors can slow down your refund or prompt the IRS to take closer look at your return. Here are common tax filing mistakes and how to avoid them.
6 tips for college graduates
Filing taxes as a college graduate can be a lot different from filing as a college student. These six tips can help you navigate filing taxes as a degreed professional.
Tax tips for homeowners
Owning a home is a big financial responsibility, and one of the largest investments you’ll probably ever make. Knowing the tax deductions and credits available to homeowners can help ensure your big investment pays you back a bit at tax time.