Filing your taxes for the first time can feel a little daunting. But with some research, preparation, and maybe some help from a tax professional or tax preparation software, filing taxes doesn’t have to be stressful.
In most cases, individuals don’t need to file a federal tax return until they get a job during or after high school. Others may be able to wait until after they finish college. But chances are you’re going to have to start paying taxes as a young adult and it’s important to get a handle on the process before you get started.
Read on to learn more about how to file your taxes, if you’re required to file, the tax forms you may need, and how to figure out your tax refund or tax liability.
Do you need to file this year?
If you think you need to file a tax return and are wondering how to do taxes for the first time, you should start by determining if you are required by the IRS to file your taxes this tax season. This depends mainly on your filing status and income level, although self-employed workers have some different rules.
It’s important to note that income requirements change every year. But for reference, in 2022, if you were a single filer under 65 years of age with a gross income of at least $12,950, you were required to file a tax return. For taxpayers who were married, filing jointly, and under 65, the threshold was $25,900. Both of these income thresholds apply to workers who receive a W-2 Wage and Tax Statement from employers.
If you’re self-employed, you must file a tax return and pay estimated tax quarterly if you had net earnings from self-employment income of $400 or more, according to the IRS. This is because you don’t have an employer withholding taxes from your paycheck, so you have to pay your own federal income taxes, Medicare, Social Security, and a self-employment tax.
Do dependent taxpayers have to pay income taxes?
You might think that if you’re a dependent being claimed on your parents’ tax returns, you don’t have to file yourself, but that’s not always the case.
You may have to file even if you’re a dependent, based on your total gross income. This includes both earned income (such as wages and tips), and unearned income, which includes income from interest payments, unemployment benefits or investment income like dividends, capital gains, or income from a trust.
We get it, it’s complicated. If you’re uncertain about whether or not you need to file, the IRS has a tool that can help you figure it out. Simply go to the “Interactive Tax Assistant” to check. You’ll need to know your filing status, the amount of federal income tax withheld from your pay, and other basic information to determine your gross income.
Tax forms needed to file tax returns
If you are required to file a tax return, you should begin by making sure you’ve received all the necessary documents prior to the filing deadline. It is usually April 15 but can vary if the 15th falls on a holiday or weekend.
You should receive everything you need to file by the end of January, but if you haven’t, contact your employer or the organization that hasn’t sent your paperwork. You can also double-check your online accounts or email to see if your tax documents are there.
The following are some of the forms you may receive that you might need when filling out your tax returns, depending on your individual circumstances.
- W-2 Wage and Tax Statement: These come from employers who withhold taxes, Medicare, and Social Security from your paychecks.
- 1099-NEC: Used to report non-employee compensation to freelancers and independent contractors
- 1099-G: Reports any unemployment benefits or other government compensation received
- 1099-INT: Shows any interest income you’ve earned, such as from a savings account
- 1099-DIV: Reports any dividends or capital gain earned in the tax year
- 1098-E Student Loan Interest Statement: Reports how much interest you paid on your student loans for the year
- 1098-T Tuition Statement: Reports tuition and qualified expenses paid to your school
- 1095-A: The Health Insurance Marketplace uses this form to report information on enrollments in a qualified health plan from healthcare.gov.
Tax deductions and tax credits
Both tax deductions and tax credits are beneficial when you file your tax return, but it’s good to understand the distinction between the two.
- A tax deduction lowers your taxable income (meaning the amount of income you are taxed upon).
- A tax credit reduces your overall tax bill.
It’s also important to note that many deductions can only be taken if, when you file your taxes, you take itemized deductions as opposed to the standard deduction. The standard deduction was $12,950 for 2022 but increases every year. In most cases, first-time filers will end up taking the standard deduction because it lowers their taxable income the most.
Here are some of the more common deductions and credits that may apply even for first-time tax filers.
Student loan interest deduction
If you paid interest on student loans during the tax season, you may be able to claim an interest deduction on what you paid. Miles Brooks, a CPA and director of tax strategy at CoinLedger, explains that student loans are not considered taxable income because you will repay them, but they have certain tax benefits.
“They can, however, affect your taxes by helping reduce your tax bill since you are paying interest on the loan. You are allowed to deduct as much as $2,500 from student loan interest depending on your modified adjusted gross income,” says Brooks.
It should be noted that the interest deduction for student loans can be taken even if you take the standard deduction on your taxes.
Earned income tax credit (EITC)
If you have an earned income of less than $59,187 (as of 2022), an adjusted gross income of no more than $16,480 (with no children), and investment income of $10,300 or less, you may qualify for an EITC of up $560. If you have kids, you can qualify for even more. There are additional requirements, so check with the IRS to see if you qualify.
Lifetime learning credit (LLC)
If you’re a student and you pay for your own tuition or other qualified educational expenses at a college or other post-secondary school, you may be eligible for a lifetime learning credit worth up to $2,000.
American opportunity tax credit (AOTC)
The AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 if no one can claim you as a dependent. If the AOTC brings the amount of tax you owe to zero, you could receive up to $1,000 as a refund.
If you are over 18 years of age, no one can claim you as a dependent, you are not a student, and you contribute to an IRA or an employer-sponsored retirement plan, you may qualify for the saver’s tax credit, depending on your adjusted gross income as reported on Form 1040.
Other deductions and credits
You may want to talk to a tax professional about other possible credits or deductions you might be able to take. For example, if you work for yourself from home, you may be able to take a home office deduction or get other tax breaks for supplies and equipment used to run your business. And it’s always a good practice to stay organized and hold onto your paperwork, advises Armine Alajian, CPA and founder at The Alajian Group.
“Keep track of your expenses. This coincides with researching deductions and credits that may apply to you. For example, if you find that certain job-related expenses are tax deductible, you must have the receipts to have accurate and provable records in case you get audited by the IRS.”
“On that same note, it’s really important to keep your documents organized before filing your taxes AND after,” Alajian says. “In the event of an IRS audit that could come long after you file, you’ll be thankful you kept organized records, either physical or virtual, containing any relevant forms and receipts needed to back up your return.”
Filing your return
Very few people do their taxes by hand anymore. And with all the resources available on the internet and elsewhere, it makes a lot more sense to file your federal return online. Or, for more complex tax situations, you might want to get help from a licensed tax preparer.
The majority of Americans now file their federal taxes online, and many of them find tax preparation software to be helpful. It will walk you through the entire process, from inputting your income information to the final step, where you find out if you’re collecting a refund or have to pay taxes.
You may also qualify for the IRS Free File program, which won’t cost you a penny and uses many of the same software programs that you would normally have to pay for.
Hire a tax preparer
If you only have one job, with a single W-2 and no deductions or credits to take, filing your tax return is pretty straightforward. But, if your situation is more complicated or you just don’t feel confident doing your tax return on your own, there’s nothing wrong with hiring a tax professional to do it for you, says Alajian.
“It really depends on your situation. You can definitely attempt to file your taxes on your own, but if you’re unfamiliar with tax deductions and credits, you could be missing out on ways to increase your return or lessen how much you owe. Tax professionals can help guide you through the process as a first-time filer while making sure your information is accurate, giving you the priceless gift of peace of mind.”
Information needed to file
Regardless of how you decide to file your tax return, you’ll want to be organized to make the process as smooth as possible, and that means gathering all your required paperwork. For first-time tax filers, you may only need a few documents, but everyone’s tax situation is different. In general, though, you’ll need the following information and documents to file taxes.
- Your Social Security number
- Your bank account number and bank routing number
- IRS forms proving your earned income, such as a W-2 or 1099-NEC, or multiple forms if you have more than one job
- IRS forms stating your unearned income, such as a 1099-INT or 1099-DIV
- IRS Form 1095-A if you had a health insurance plan from the Health Insurance Marketplace
- Any documentation needed for deductions or tax credits like your 1098-E student loan interest statement
Once you have all your paperwork in order, you can make an appointment with a tax pro or start filling out your return online. Either way, take the time to look over your return for any mistakes, suggests Alajian.
“After you finish filling out your return, double-check it. Carefully review it to make sure everything is accurate, especially your Social Security number or income amount. If there are any discrepancies, the processing of your return may be delayed.”
How to get your refund or pay your tax bill
If you finish your taxes and discover that you’re owed a refund, congratulations. The fastest way to get your money is by direct deposit to your bank account, but you could opt for a paper check if you wanted to. But if you go with direct deposit, you’ll get your money faster and won’t have to worry about a mailed check getting lost or stolen. Plus, a paper check will probably take longer to reach you.
If, on the other hand, you find that you owe the government money, you can pay a couple of different ways. The easiest and cheapest way is to pay by electronic check. That’s why you need to supply your banking account and routing numbers. You could also pay with a credit or debit card, but be aware that you will be charged a “convenience fee.”
If your tax liability is more than you can afford, you can apply for a payment plan with the IRS. But be aware that you will likely have to pay interest on the balance and possibly penalty fees as well.
- If you’re filing your taxes for the first time, you may want to file online or use a professional tax preparer.
- You’ll need documentation of both your earned income (wages, salary, and tips) and unearned income (like investment or employment income).
- Tax deductions reduce the portion of your income subject to tax; tax credits lower the overall tax you owe.
- The fastest way to get your refund is by direct deposit, and the cheapest way to pay your tax debt is by electronic check.
View Article Sources
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- Tax Deductions – SuperMoney
- Who needs to file a tax return – IRS.gov
- Lifetime Learning Credit – IRS.gov
- Structure of Education – U.S. Dept. of Education
- 2022 health coverage & your federal taxes – HealthCare.gov
- What Is Considered Early Tax Filing? – SuperMoney
- How to File Self-Employment Taxes Step by Step – SuperMoney
- How To File Taxes in 2023: Complete Guide – SuperMoney
- How to File Taxes Without a W-2 – SuperMoney
- What is an IRS First-Time Penalty Abatement Waiver? – SuperMoney
- 10 Common Mistakes When Filing Your Taxes – SuperMoney