How to File Your Personal Taxes for the First Time
There is a saying that the only insurance in life is paying taxes. It would be so much funnier if it weren't so true. Turns out, even though it's during the same months every year, tax season always finds us off guard. Even the possibility of receiving a tax refund is not enough to prevent some of us from procrastinating and putting taxes off for another day.
If this is your first time as a taxpayer and you don't know what to do, you need to start by identifying and defining your role and responsibility as well as your tax obligation. It is no use putting it off and it still has to be done. Want to know how to file taxes for the first time? Let’s dive in.
How the IRS Determines Taxes?
The first thing to do is to understand how the IRS determines your taxes. Yes, the government is the entity that decides the amount of taxes that you should pay. They use taxable income to divide and put you in a tax bracket. Each chunk of your taxable income is taxed at a specific tax rate, which has to correspond. The good thing is that no matter the tax bracket you fall into, you don’t have to pay the tax rate for the whole taxable income.
The United States uses a progressive tax system, which means that if your taxable income is high, you are subjected to a higher tax rate at the federal level. The opposite is true for those who make a lower taxable income.
Getting Organized
Now that you have a basic understanding of how the IRS determines your taxes, it is time to get organized. Having all the information and paperwork you need ready so you can file your taxes will make the process faster and easier.
The best way to do this is to have a place to file all your invoices and other documents; among others.
It falls into categories, which include
Personal information
Expenses
Income proof
Gathering the Information
Whether you plan to do your taxes on your own or hire a tax professional, you have to gather up all the information needed to complete the process. Your objective should be collecting your expenses for deductions, proof of income and possibly proof of taxes paid throughout the tax year.
Here is a specific list of what we are talking about:
- Social Security numbers
- Dates of birth for you and all your dependents
- W2 form for the previous year, if you are an employee
- Contributions for the retirement account such as 401k
- 1099 form, if you are self employed
- Property taxes
- Medical bills not reimbursed
- State and local taxes that were paid
You should include documentation to ensure you get all the tax deductions you deserve, including but not limited to: child care costs, education costs and expenses, mortgage interest, investment interest expense, charitable donations, casualties and theft, insurance refunds and expenses medical and dental.
Let us look closely and in more detail at the documents mentioned above:
- SSN or EIN
First of all, you need your basic personal information. Personal information includes your Social Security number (SSN) or taxpayer EIN, if you are a business owner. You will also need to include your name, address, and marital status. If you are filing a joint tax return, you do not need to include your marriage certificate, but you must know your partners social security number and birth date.
- Employer Form W-2
The W-2 form includes your annual salary and the taxes that were withheld from your checks. Again, your employer must provide it to you and, by law, must provide it to you before January 31 of each year.
- Form 1099 from Banks and Other Payers
Form 1099 from banks and other payers The 1099 form includes any additional earnings you have received throughout the year. It does not include earnings on the W-2 form. There are different 1099 forms that you can receive, depending on your situation. For example, independent contractors receive a 1099-MISC form, which includes the income they generate from contract work.
Learn about other 1099 forms and what they are used for:
Form 1099-INT: To report interest income in excess of $10 from a bank account.
Form 1099-DIV: To declare dividends from stocks and mutual funds in excess of $10.
Form 1099-B: to declare the sale of shares.
Form 1099-C: to declare the cancellation of debts. - Other Documents to Declare Income
There are many other sources of income that are not included on a W-2 or 1099 form. These include foreign-earned income, real estate sales, rental income, or royalties, among many others. You will not always receive an official form to declare these types of income. However, you still need proof.
For example, if you earn income from abroad, you may not receive a W-2 form, but you still need to know how much you generate in order to report it. Or, if you receive money for a rental property, you should have receipts or bank statements showing the total income you are reporting.
While you don't need to submit these documents, the Internal Revenue Service (IRS) may ask you for proof in an audit. It is recommended that you keep all documents for up to three years. - Proof of Health Insurance
To avoid a fine, you must show that you have health insurance coverage. There are three different 1095 forms, depending on your situation.
Form 1095-A: indicates that you are enrolled in a health plan through the health insurance marketplace.
Form 1095-B: indicates that you are enrolled directly through a private health insurance provider.
Form 1095-A: indicates that you are enrolled in a health insurance plan from your employer. - Documents on Student Enrollment and Credits
For those paying for their college education, interest on their student loans or paying for tuition costs at a culinary school, for example, it is possible that you might be eligible to receive tax reduction or tax credit. You will need two significant forms in order to claim those tax benefits or tax credit on your interest payments. The forms include:
Form 1098-T: which is a tuition statement report to show the amount you paid for tuition and any other related fees and the scholarship reimbursements, if any. This form can be obtained from your college or university. To get the educational credit, it must be included on your tax return.
Form 1098-E: which is a declaration form, which states your interest payments made on student loans. It reports the exact amount you paid within the previous year for interest on your student loans. This form can be obtained from your education loan provider. It should be included on your tax return, if you want to obtain any tax deductions.
Past Tax Return Information
If you want to know how to file taxes for the first time, of course, you won’t have previous tax returns. Subsequently, if your tax return was filed the previous year, you have to be sure you have it in your possession because you may have to verify some important details.
However, you can look at a close family member’s past tax return to see how it is done, but it might not be as easy for you to understand and that is why a professional is the way to go.
Early Filing
Be sure to declare early. Waiting until the last minute will only add stress to the process. Your employer, or your employers, must submit the W-2 forms by January 31st and by that time you should also have received the 1099 forms. Therefore, if you have done your homework and organized all the documentation you will need, you should be ready to file your taxes before the first week of February.
However, for the past several years, the IRS is giving a specific date in February that tax payers can submit their tax returns. Make sure you check to see the date. It changes every eyar. Filing your taxes early not only gives you the peace of mind that you no longer have to worry about this, but it also means that you will receive your tax refund earlier!
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Setting Date and Time to File
Set a time and date to file your taxes, if you are going to do it yourself. Block some time on your calendar to file your taxes. Scheduling a date and dedicating time to it without interruptions is better than squeezing in time to work on your taxes and constantly having to put it off because something else came up. This will only throw you off, and you won’t be able to focus on the deductions that you are eligible for. You should also carve out a date and time to speak with a tax professional after you have gathered all the necessary documentation. You might have to spend some time answering questions since this would be your first time filing and the tax professional does not have anything on record to use.
Choose a space that is quiet and relaxing. Being locked inside your home or office with a lot of paperwork could accentuate you. Being outdoors and filing your taxes in a place that relaxes you with classical or fun music in the background can help to make the whole process more relaxed and enjoyable.
Filing Status
Whether you know how to file taxes for the first time or not, you probably do know the different filing status. If not, let’s explain. Your filing status depends on whether you are single, married, and head of household. Your filing status also depends on your income, your age and other specific factors. As long as you have had taxable income withheld from an employer, you should file your taxes. It is mandatory. If you are claiming dependents on your tax return, it is also important to have all the details ready and handy. Dependents can be children between the ages of 0 to 17, a disabled family member, an elderly parent or foster child. The filing status and income as well as dependents will determine whether you receive a tax refund or owe the IRS money. If you have dependents, you are entitled to tax credits on your return. If you had estimated tax payments or if you applied last year’s tax refund to estimated taxes for the current year, you should include this information when filing.
How Do You File Taxes?
There are three primary ways that you can file your taxes:
- 1. You can complete the Form 1040 or 1040-SR, which is provided by the IRS on their website.
- 2. You can complete the form by hand and send it off in the mail.
- 3. Or you can file your taxes by using software application, which you can purchase at any office supply store, or you can file it online.
Hire a Tax Professional
The most recommended option is hiring a tax professional to do all the work for you. It is best to use a tax professional since the tax laws change every year, and you might not be privy to them. When you use software application or do your taxes online, you have access to tax preparers, if you run into any challengers.
However, why take the chance of doing it yourself and then get confused, stop in the middle of it and decide not to file at all? It is just a better way to hire a tax preparer from the beginning and let them use their tax software to figure out the complexities.
Things to note
If you file your return by mailing it in, the IRS processes paper returns within six to eight weeks. If you file electronically, you should receive your taxes within three weeks or even less. Make sure you have the IRS send your refund via direct deposit, so it goes directly into your bank. You might end up receiving your tax refund in two weeks. When you file electronically, it gives you the ability to track the return to see the status. The IRS provides that information on their website, as long as you input the right information, including refund amount, social security number and date of filing.
Conclusion
Go over your tax return to see if you missed out any other deductions or tax credits. Never leave anything on the table. If you are not sure what other deductions you may have, then it is best to seek the help of professional tax services that know the laws, which usually change every tax year.
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