If it’s your first time filing taxes, you want to make sure you’ve done your taxes right. Making mistakes on your taxes can be at best, annoying, and at worst, costly, so you’ll want to be prepared and organized as you start the process.
Whether you’ll prepare taxes yourself or visit an accountant or tax preparer, there are a few things all first-time filers should know. We’ve rounded up some of the most important tips for you to keep in mind as you prepare your taxes this year.
Confirm You Need to File
Before gathering paperwork or understanding credits and deductions, review the filing requirements from the IRS and your state to confirm you do need to file taxes. If you are under age 65, single, and made less than $12,200 in 2020, you are below the threshold and aren’t required to file. (The income requirement doubles if you are married.)
However, there are some circumstances where you would be required to file despite meeting these criteria, so it’s important to thoroughly review the requirements each year.
If you aren’t required to file taxes but had income tax taken out of your pay check or qualify for certain credits (more on that later), you may want to file anyway to receive a tax refund.
The tax filing deadline is April 15, but if this is your first year filing, you should start well before then. This will allow you enough time to ensure you have everything you need and truly understand each component. It also gives you a bit of breathing room in the event that you realize you are missing important paperwork or if you run into a tricky tax situation.
Gather the Right Paperwork
Taxes are paperwork, and they require other paperwork to complete them. At the very least, you will need your W2 or 1099 form from your employer or however you earned income in 2020 also fill 941 form from your employee. You may also have interest income, scholarship or tuition documents, or other miscellaneous forms.
There are a lot of possible tax forms for different kinds of income and payments in a calendar year, so don’t worry if it feels confusing and overwhelming. Online tax filing programs and tax resource websites have plenty of clear definitions and resources to help you understand these different forms and where they are used.
To make sure you’re not missing any paperwork, think back on any income you may have had in 2019. This could include jury duty income, scholarships, and income from rental properties or self-employment, as well as income made in multiple states. Additionally, you may have forms listing adjustments to income, such as from IRA contributions or alimony payments.
Know If You Are Being Claimed as a Dependent
If you are a student or recently moved out of your parents’ house, find out if they are claiming you as a dependent. Dependent status determines who can claim certain credits, such as education, so if you aren’t being claimed, you’ll want to make sure you claim those credits on your own tax return.
Pick the Right Filing Status
Choosing your filing status is typically straightforward, but there are some nuances that you’ll want to double check. The two most common filing statuses are single and married filing jointly, but you can also file as head of household, married filing separately, and qualifying widow or widower. You might also want to keep in mind that if you are a widow or if you are the conservator to someone who recently passed away, you’ll need to file on their behalf.
Decide If You Should Itemize Deductions
Each year, the IRS determines a standard deduction to ensure that every resident has some income that is not taxed. (Note: the standard deduction is equivalent to the income requirements for filing taxes each year—if your income minus the standard deduction is zero or lower, you won’t have to file.) But in some cases, you can also itemize your deductions to further reduce your taxable income.
You can’t itemize deductions and take the standard deduction in the same year. Itemized deductions can include things like medical expenses, charitable contribution, and interest on the mortgage. It’s rare for first-time filers, particularly students, to itemize deductions, as it’s difficult to reach the $12,200 threshold that would be a greater benefit than the standard deduction. Note that if you do itemize deductions, you may need to provide additional paperwork to back up your claims.
Don’t Miss Out on Credits
While deductions reduce your taxable income, tax credits reduce the amount of tax you owe on that income. The most common tax credits are for child care, education, and health care expenses, but there are also credits for energy efficiency, disaster relief, investments, real estate, and more. Tax prep software and tax resource sites will often walk you through tax credits and the requirements for claiming them. It’s worth exploring any credits you may qualify for, as you may find bigger savings on your taxes.
Once you’ve filled out all your personal information, entered all your income, and finalized your credits and deductions, take time to review before hitting submit. A typo or clerical error, such as the wrong Social Security number, could be a costly mistake. While it may feel repetitive and time-consuming to go over every page line-by-line, the relief you’ll feel at catching one error will be well worth it.
There’s no better time to be a first-time tax filer: there is so much information available to explain the nuances of tax forms and help filers figure out the best way to maximize their tax refund. By starting early, taking it step-by-step, and asking for help when you need it, your first tax season will be a breeze.
Samantha Rupp holds a Bachelor of Science in Business Administration. She is the managing editor for 365businesstips.com. She lives in San Diego, California and enjoys spending time on the beach, reading up on current industry trends, and traveling.