Welcome to the exciting world of being an adult – paying bills, going to the doctor, and filing taxes! With the official start date of tax season beginning January 28th, it’s time to start thinking about your taxes!
If that made you violently ill, don’t worry, you’re not alone! I’m sure by now you’ve heard people bemoan the horrors of paying taxes. Particularly about how frustrating and confusing our taxes can become. For that reason, we wrote this guide to give beginners a leg up in this year’s tax season!
While it may seem a little confusing at first, it’s not nearly as scary as many people make it out to be. Lucky for you, the newer you are at tax returns, the easier it gets.
When you’re done reading this, you’ll be prepped and ready to take on your taxes!
Did you know? Nearly half (46%) of all Americans don’t even know what tax bracket they’re in. Don’t be like that! Here’s what tax bracket you’re in and how they work!
Why do we file tax returns?
The purpose of filing income taxes at the end of the year is a little complicated, so bear with us.
Essentially what the IRS is doing with taxes, is taking an advance loan from the American people. Every time we earn a dollar, they get a dime.
When tax season comes around, the IRS will check our tax returns, in order to see if we’ve paid our “fair share” relative to how much we earned. Depending on whether this number is up or down, you’ll either get a tax refund, or owe money (called a Back Tax) to the IRS.
Doesn’t the IRS know how much I make?
For most people, this is true… sort of. But that doesn’t mean we can get out of filing taxes.
If your sole source of income is from an employer, it’s likely the IRS knows exactly how much you make. Infact, when you first got hired, some of the paperwork you filed was called a W-4. This document lets your employer know how much – or how little – you want them to “withhold” from your paycheck to cover these taxes.
But not everyone’s income is that simple. Self-employed people have to manage setting aside their own money for tax season. Not to mention gains made on investments, foreign income and real estate.
Do I need to file taxes?
To put it simply, if you’re making money, the answer is likely yes. But it wouldn’t be very helpful if we just ended it there!
Naturally our, uh, “friends” at the IRS have laid out the rules not-so-simply for us. As with everything in taxes, there’s many different rules in place for where exactly you meet the threshold for filing, such as:
- Age
- Income
- Filing Status
For the purpose of this guide, we’ll go ahead and assume you’re probably under the age of 65. In that case, we’re left with 2 conditions – income and filing status. To make it simple, we’ve put together a handy chart for reference:
Keep in mind, this is for people who are employed by someone. For those of you that are self-employed, you’ll have to file income taxes if you’ve made more than $400.
Still not sure if you need to file? Check out this handy tool on the IRS’ website. It will ask you a few questions and determine if you need to file or not. Best of all, it only takes a few minutes to complete!
What you’ll need to file taxes
So you definitely need to file – what exactly will you need to accomplish this? Surprisingly, not a whole lot! Most people starting out will likely only need one or two documents to file their tax return.
Those being:
- A W-2 (or Schedule C and Schedule SE for self employed)
- Form 1099 (if you made documented income from someone other than an employer)
- An E-file program
- Bonus: Coffee
If you work for someone, your employer will send out a form called the W-2. Your W-2 contains a heaping amount of useful information, notably:
- your total gross income
- net income
- Taxes withheld from your paycheck
Just as your W-2 shows income paid by an employer, the 1099 form shows income made from other outside sources. Here a few examples that can show up on a 1099:
- Freelance Work
- Interest made from savings accounts
- Prizes or rewards over $600
Don’t get ahead of yourself
Something to keep in mind, 1099 forms are notorious for showing up a bit later than your W-2. Make sure you know if there’s any non-employer income you need to file!
If you file your taxes before getting your 1099, you’ll have to start all over again – no one wants to do taxes twice.
Being organized and prepared is the key to pain-free (is that a thing?) taxes. Make things easy on yourself by being responsible!
Did you know? April 15th is the final tax day this year, but that doesn’t mean you have to wait! Starting January 28th you can hop online and start filing. Just make sure you have all of your documents!
How to file your taxes online
Of course, all this fluff doesn’t do you much good unless you’ve got somewhere to put it. For younger folks and first-timers, we highly recommend filing your taxes online. You just can’t beat how quick and easy e-filing has become. Not to mention it’s (usually) free!
That being said, it’s important to keep your wits about you when filing online. Fake tax sites and IRS scams are some of the most common phishing techniques out there. Here’s a few trustworthy online tax companies that are certified by the IRS.
- TurboTax is by far the leader in e-filing done easy. Their slick filing system will guide you through the entire process one step at a time. Not only do they make your taxes easy, they’ll help find any credits you qualify for to maximize your tax refund. Best of all, it’s 100% free to use – just don’t get tricked into buying their “premium” services.
- TaxSlayer comes in at a distant second. Much like TurboTax, they offer completely free filing for both state and federal taxes. Though their UI may not be as clean, it’s still a safe company to file your taxes through.
- The IRS offers free online tax filing through their Free File Alliance program. The catch here is that you need to have relatively “easy” taxes and make less than $66,000. That being said, it’s an IRS certified, safe and secure way to file your taxes online.
Filing your taxes requires that you provide more personal information than any other service you’ve used before. Therefore, be sure you can trust whoever you decide to use!
Take advantage of deductions
While companies such as TurboTax do a great job of figuring out what deductions and credits you qualify for, they’re certainly not perfect. Doing your homework and learning what tax advantages are available to you is important! A few minutes of research can end up saving you hundreds, if not thousands of dollars.
As an example, the Lifetime Learning Credit (LLC) can reward many students with a tax credit upwards of $2,000. This includes both full time and part time students. Not only that, people taking select classes to improve their career can also qualify for the LLC.
Credits aren’t just for students. If you’re a parent, make sure you know about the sweet tax breaks your little brats dependents can give you.
Why stop there! We’ve got plenty more tax credits, deductions and exemptions you need to know about.
Did you know? While many people live in fear of the scary IRS, only 0.60% of accounts were audited in 2017. See, they’re not so bad! (Ok, not really)
What happens after I file my tax return?
If you’re filing online, then you’ve likely been watching that number on your tax return going up or down. As we mentioned previously, the whole point of documenting your income is to see if you still owe money to, or deserve a refund from, the IRS.
Once you’re all done, your documents will be safely whisked away to the IRS so they can work their magic. If you’re getting a refund, you’ll see a check (or direct deposit) coming your way soon. On the other hand, if you owe money, you’ll be seeing a pink slip in the not-so-distant future!
Remember, a lannister the IRS always collects its debts.
Did you know? While the terms refund and return are often used interchangeably, they actually mean 2 different things. Your tax return is the paperwork you file for taxes. Your tax refund is the money given back to you by the IRS.
Owing taxes vs tax refund
So you know you’re getting one or the other – but what exactly do they mean?
It’s pretty simple.
The money being “withheld” from your paycheck each week is meant to cover all of the various taxes owed. If too much money has been withheld at the end of the year, you’ll get it back in the form a “tax refund”. On the other hand, if the IRS finds you haven’t paid your share in taxes, they’ll send over a bill.
You’ll be fine
For young aspiring taxpayers, you shouldn’t have to worry about owing any taxes. This is due to your income likely only coming from one or two places, primarily from your workplace.
Things tend to get significantly more complicated when you have many different types of income – such as large investments or owning a business. In that case, the burden of paying taxes relies on you, not your employer.
All that being said, your first time filing a tax return will most likely be a sizeable tax refund.
When will I see my tax refund?
Don’t worry, it won’t take long!
The IRS says you’ll usually receive your tax refund in about 22 days. Now, If you filed your taxes online, it’s often much faster than that – typically within 7 to 10 days.
Whichever it is, that’s still better than the 2+ month wait we used to have.
Did you know? In 2018 the IRS refunded $126 billion dollars to taxpayers! That puts the average tax refund at just over $3,000.
What to do after you get your tax refund
As tempted as you’ll be to go spend that refund on a new TV, just hold your horses for a sec. First, depending on how big your refund is, you should take this time to adjust your tax withholdings.
Second, don’t go blowing all that cash! Now’s a good time to make a budget and start building your savings.
TL;DR
That’s it! You’re ready to file your first tax return.
As you can see, it’s really not so bad – especially for those filing for the first time. Just remember to take it slow and make sure you jot down your information correctly. Be sure to triple check everything before sending it off and make sure it’s all accurate.
In a week or two you should (hopefully) be seeing a nice big check coming your way!
Now that you know how to do taxes… Do you know what tax withholding allowances are? Learn how you can improve your tax situation and even increase your pay check!
Find this article helpful? Subscribe to our newsletter to never miss out on awesome finance tips!
[mc4wp_form id=”757″]
First time puppy tax
