Once you enter the working world, the liability of paying taxes comes along with those sweet paychecks. Tax filing season is just getting started and it can get overwhelming especially for the first time taxpayers. What is an exemption? How to complete a Form W-4? Can you file your income tax online or do you need a consultant? We are here to answer all of your questions as a first time taxpayer and show you that it is not as difficult as you may think. With the correct guidance and some confidence, you can file your taxes easily on your own.
Thus to make your life easier, this article aims to not only guide first time taxpayers through the federal tax filing process but also provide tips to get a bigger refund.
Before you begin, understanding how federal income tax works is critical. The US has progressive income tax rates. There are seven tax rates for seven salary ranges, rising from 10% to 37% with the increase in annual income. An online tax calculator can be a powerful tool for the first time taxpayers to calculate the taxed amount on your income in advance and how those funds are being allocated. It also will help you understand the deductions and plan to apply for a refund.
Keeping all your documents organized is a good way to start preparing to file your IT return. Some of the documents that are needed for the process include W-2s, 1099s, or any other tax forms that report other types of income, tax deductions, and receipts. Pro tip – keep a record of all the jobs that you worked last year, times that you bought or sold stocks, paid for college tuition, or applied for a student loan, etc. so you do not have to search your memory for this information as tax season approaches.
Deductions and tax credits can make a significant difference in your tax computation so one should be careful about not missing the deductions they are eligible for. It can even help you increase the refund amount. The rules for claiming these tax credits and their eligibility requirements are easily available online making them easy to claim if you do your research.
A few common tax deductions that apply for first time taxpayers are –
It is not unusual for Millennials and Gen Z to have a side hustle for some extra income in the gig economy. Your freelancing income cannot be treated the same as your salary for the purpose of tax filing, however. Gig work income should be reported in Schedule C: Profit or Loss from Business and it is important any income earned should be reported to the IRS.
Experts suggest filing your taxes earlier rather than later. There are chances of being a victim of identity theft due to delay in tax filing, a crime that is on the rise nowadays. Plus, it also helps in planning for an extension in advance if you need one and you can receive your refund sooner if you are eligible.
While you may know the basics of doing taxes, it is important to stay on top of changes in the tax code. Remember that the tax code changes on a yearly basis, which means the opportunities for savings may change as well. Here are some tips that may come in handy to be able to get big refunds while filing taxes this year -
No matter if you choose to file taxes on your own or with the help of a consultant, it is always advisable to plan ahead to be able to file an accurate return. However, if you need more time to complete these tasks, you can request an extension to October 15th, however you still will have to estimate the amount of tax owed and pay that amount by the regular April deadline to avoid penalties and delay in your refund.
There are many tax preparation platforms available online that can allow you to file your return conveniently through a guided process. In fact, if your adjusted gross income is $73,000 or less, IRS may allow you to file your federal individual income tax return for free.
Now that you have all this information at your disposal, doing your taxes for the first time won’t seem like a daunting task and it will only get easier every year!