This article was fact-checked by our editors and CPA Janet Murphy, senior product specialist with Credit Karma Tax®. It has been updated for the 2020 tax year.
Learning about taxes is an important life lesson, especially if you’re serious about growing and retaining wealth.
In the past, you may have had your parents, or their tax preparer, file your taxes. But now that you’re a working professional, you’ll want to take charge of your own finances. This is the year — you’ve decided you’ll prepare and file your own federal tax return.
Mistakes can happen the first time you attempt anything in life, and filing your own taxes is no different. Messing up on your tax return can cost you money, but you can take steps to avoid some common rookie tax-filing errors.
Here are some common first-time filer mistakes and how you can avoid making them on your federal tax return.
- Not filing at all
- Filing without all your tax documents
- Picking the wrong filing status
- Overlooking the benefits of itemizing
- Failing to report all your income
- Missing education credits or tax deductions
- Making a clerical mistake
- Paying for ‘free’ software to file your taxes
- Paying fees to get an advance loan on your refund
- Not knowing if your parents are claiming you as a dependent on their taxes
1. Not filing at all
You think: “I didn’t make much money, so I don’t have to file!”
That assumption could be a costly mistake. A number of factors determine whether you have to file, such as your age, income and marital status. For example, if you’re single, earning $12,000 (the standard deduction for the single filing status) or more means you’ll have to start paying taxes. And if an employer withheld federal income tax from your paycheck, you could be eligible for a refund — but you must file a tax return to get it. Check Box 2, Federal income tax withheld, on your W-2 to see how much in federal taxes you had withheld for the year.
Not filing could also mean you miss out on refundable credits you may be eligible for, like the earned income tax credit.What's the earned income tax credit?
2. Filing without all your tax documents
It’s a good idea to file your federal income tax return as soon as possible. But being in too much of a rush can work against you. For example, you may forget to report income you earned and file before you receive a Form 1099 for that work. And after you file, you receive the 1099 — and then a letter from the IRS stating you owe more tax because of the under-reported income.
Take time to ensure you received all your income statements and any other documents you might need. By law, most companies are required to have income statements such as W-2s and 1099s sent out by January 31 — wait for all of them to arrive before filing your taxes.
3. Picking the wrong filing status
If you make the mistake of choosing the wrong filing status, you could end up costing yourself some money. For example, if you’re unmarried and have a child who lives with you, choosing the single status will allow you the standard deduction of $12,400. But your dependent child may help you qualify for the head-of-household filing status, which has a standard deduction of $18,650 — that’s a difference of $6,250!
What are the standard deduction amounts for 2020?
The standard deduction amounts for 2020 are:
- $12,400 for single filers
- $18,650 for head of household
- $24,800 for married couples filing jointly
- $12,400 for married couples filing separate returns
4. Overlooking the benefits of itemizing
Itemizing your deductions could allow you to deduct more expenses versus taking the standard deduction. Some commonly itemized deductions are medical expenses, state and local taxes, personal property tax, mortgage interest and charitable contributions.
For example, say you’re a single taxpayer and you itemize qualifying deductions that add up to $16,000 — you’d be able to deduct $3,600 more than if you just took the standard deduction ($12,400) for your filing status. So if you have a lot of deductible expenses in a tax year, check to see if you have enough to beat out the standard deduction.
5. Failing to report all your income
Say you held down a side job most of the year cutting yards in a few neighborhoods near your home. You made $4,500 during yard-cutting season, and your customers paid you in cash. You’re tempted to omit that self-employed income from your tax return, thinking that if you don’t report it you won’t have to pay taxes on it. But this is a mistake for several reasons.
Not only are you risking penalties and interest on any unpaid tax and the potential for other serious consequences, you’re also cheating yourself out of some expenses that could help lower your tax burden. Filing a Schedule C will allow you to report qualifying business expenses — like fuel for the lawnmower, gas to drive to and from customers’ houses, and the flyers or business cards you printed up to get customers. You might even be able to deduct depreciation on your lawn equipment!
6. Missing education credits or tax deductions
If you attend college or have recently graduated, you may qualify for an education credit or deduction, such as the American opportunity tax credit, the lifetime learning credit or the student loan interest deduction.
A tax credit directly reduces the amount of tax you owe and could give you a bigger refund if it’s a refundable credit like the AOTC. A tax deduction reduces the amount of income you have to pay tax on, meaning you could end up owing less.
When you miss a credit or deduction, you essentially leave money on the table.Parent or child: Who should take college tax breaks?
7. Making a clerical mistake
Tax preparation requires a great deal of data entry. Before hitting the submit button to e-file, review your return carefully to ensure you’ve correctly entered key information, including …
- Your full name, spelled correctly
- Your date of birth
- Social Security number
- Calculations (such as your income sources adding up to the total income you’re reporting)
- Checking account number and routing number if you’ve chosen direct deposit for a refund
Mistakes can cause the IRS to contact you to correct or reject a return, and even delay any refund you’re owed.
8. Paying for ‘free’ software to file your taxes
If you’re not confident about doing something on your own for the first time, you may think you need to pay a tax preparer to do the work for you. But tax-preparation software and online services have made it easier than ever to self-prepare and e-file your federal and state income tax returns.
Be aware that not all “free” tax software options are truly free. Some may allow you to start your taxes for free and charge you a fee to e-file your return. Others may allow you to do simple returns for free, or your federal return for free, but charge for more-complex tax situations or if you also want to file a state return. Be sure to read the fine print before committing to a provider.
With Credit Karma Tax®, preparing and filing your federal and single-state income tax returns is always free.
9. Paying fees to get an advance loan on your refund
Most federal income tax refunds typically come within 21 days after you e-file a federal return. But if you want money more quickly, you may consider applying for a refund advance. Refund advances are essentially loans that you borrow against your anticipated tax refund.
Refund-advance products typically come with fees and limitations that vary based on the loan provider. And take note: If your refund turns out to be less than anticipated, you’ll still be on the hook for any refund-advance fees.
Before you take any kind of refund-anticipation product, carefully weigh the benefits against the fees and risks. You might decide waiting (often 21 days or less if you e-file) isn’t that bad after all.
10. Not knowing if your parents are claiming you as a dependent on their taxes
Your parents may have been claiming you for years and filing your taxes for you. But now, you’d like to file your own taxes. Before you prepare your return, talk with your parents so that everyone’s on the same page. If your parents have been paying for your college expenses, they may want to claim you on their taxes, so that they can claim education credits. But if you paid more than half your own expenses for the year, your parents can’t claim you as a dependent on their taxes.
Filing taxes on your own can be simple and cost effective. Once you know what not to do, you can feel confident filing your first return. Take your time — don’t rush when preparing and filing your return. Mistakes are less likely to happen when you’re prepared. And if a mistake does occur, try not to stress about it too much. Remember, you generally have up to three years from the date your return was filed to correct your mistake by filing an amended tax return.
Relevant sources: IRS: Steps to Take Now to Get a Jump on Your Taxes | IRS: 2020 Form W-2 | IRS: Choosing the Correct Filing Status | IRS: Topic No. 501 Should I Itemize? | IRS: American Opportunity Tax Credit: Questions and Answers | IRS: Eight Common Tax Mistakes to Avoid
A senior product specialist with Credit Karma Tax®, Janet Murphy is a CPA candidate with more than a decade in the tax industry. She’s worked as a tax analyst, tax product development manager and tax accountant. She has accounting degrees and certifications from Clemson University and the U.S. Career Institute. You can find her on LinkedIn.