When I was living on my own and working my first job, I decided (wrongly) to do my taxes myself. But I had no idea how to file taxes, and because I was utterly clueless, I made several costly errors.
I missed out on important deductions and credits. I forgot essential forms. Even worse, I messed up the math.
I ended up owing money to the Internal Revenue Service (IRS) because of my mistakes, but it was a lesson well learned. Now, I do my homework and prepare well in advance for tax season to ensure I don’t make any mistakes.
If you’ve never done your taxes yourself, don’t make the mistake of trying to figure it out on your own. Instead, this guide will help you learn how to file your taxes — the right way.
Do I need to file my taxes?
The government doesn’t require everyone to file a tax return, so the first step is to figure out if filing taxes is necessary. Three main factors determine if you need to file your taxes:
- Filing status
According to the IRS, you have to file a tax return if you are single, independent, and make over $10,350 per year. If you’re married filing jointly and your household income is over $20,700, you also have to file a return.
If you’re a dependent, you must file a return if your unearned income — meaning your earnings from investments or dividends — is more than $1,050, or if your earned income — what you make from a job — is more than $6,300.
If you’re still not sure if you have to file a return, use the IRS’ “Do I Need to File a Return?” tool. It’s a questionnaire that takes about 10 minutes to complete. Once you’re done, the IRS will let you know if you should file a return.
Important tax deadlines for 2018
It’s common knowledge that the tax filing deadline is April 15. Though that’s normally true, this year is an exception. In 2018, you have two extra days to complete your taxes: The tax deadline is April 17.
This year, April 15 is a Sunday and the IRS doesn’t allow the tax deadline to fall on a weekend. The following Monday is Emancipation Day, a legal holiday in the District of Columbia. The IRS closes their offices on that day, so the whole nation gets an extra day to file their returns.
Documents you need to file taxes
When you’re preparing to do your taxes, collect all the necessary documents ahead of time. It’s common for forms to trickle in slowly, so designating a spot just for tax documents can help you keep track of everything you need. Filing taxes is much easier — and less painful — when you’re organized.
Here are some common documents and information you might need to file your taxes:
- W-2: A W-2 is a form your part-time or full-time employer sends you. It shows how much money you made in the past year and how much you paid toward taxes, Social Security, and Medicare.
- 1099: If you earned over $600 by freelancing or working a side gig — such as driving for Uber — your client will send you a 1099 form. The form shows how much you made last year, but unlike W-2s, no money was taken out for taxes.
- Other income records: If you worked a side hustle but made less than $600 from a client, you won’t get a 1099 — but you still have to report that income. Keeping a spreadsheet of your earnings or having a separate business bank account can help simplify tax time.
- 1098: If you made interest payments on your student loans, your lender will send you a 1098 stating how much interest you paid last year.
- 1095-A: If you got health insurance through Healthcare.gov, the government will send you a 1095-A form. This states that you had qualifying coverage for the year.
- 1099-INT: If you earned interest from any savings accounts or dividends over the year, your bank will send you a form. This will show how much interest you earned.
- Bank account routing number: To get your tax refund as quickly as possible, it’s a good idea to sign up for direct deposit when you file your return. To do so, you’ll need your bank account number and your routing number.
- Expenses and receipts: If you landed a new job, relocated to advance your career, or attended business conferences, you can deduct associated costs. Make sure you keep receipts handy when you do your taxes.
How do you file taxes?
If you use tax preparation software or a tax preparer completes your taxes for you, they’ll complete and submit the necessary forms on your behalf. If you choose to do it yourself by hand, you will have to download and complete each required tax form on your own.
While you can certainly do your taxes the old-fashioned way, using paper forms can lead to errors. There are many options you can use to file your return more accurately:
- Tax software: You can file your taxes electronically using one of many online programs, such as TurboTax. Some options are free but others have a fee, so choose a program based on your preference and financial situation. If you make less than $64,000, you can use the IRS’ free filing tool.
- In-person assistance: If you need more hands-on aid and make under $54,000, you can get free in-person help. Find an IRS-trained volunteer by visiting a Volunteer Income Tax Assistance (VITA) location.
- Hire a tax professional: If doing your own taxes is too confusing or complicated, consider hiring a tax professional. They can handle the whole process for you and ensure you get the maximum refund available.
When choosing which option is best for you, consider how complex your taxes are. If you’re employed and have a side hustle but don’t have a business partnership or many investments, using software might be more than enough.
But if you run your own business, own a rental property, or have investments, your taxes might be complex enough to warrant professional assistance.
Know your deductions and credits
Tax credits reduce what you owe in taxes, while tax deductions lower your taxable income. Both are valuable items to consider when doing your taxes and can help you get your maximum refund.
In the early stages of your career, you’re unlikely to have enough deductions to make it worthwhile to itemize. Instead, you can claim the standard deduction of $6,300 and reduce how much of your income is taxable.
But you might be eligible for certain credits or deductions, even if you don’t itemize. Here are seven of the most common credits and deductions:
- American Opportunity Tax Credit (AOTC): If you paid for tuition or other related education expenses, the AOTC could be worth up to $2,500 per year.
- Charitable Donation Deduction: If you donated money or items to a nonprofit organization, you might be able to deduct the value on your taxes.
- Earned Income Tax Credit (EITC): The EITC is a valuable credit, but 20 percent of eligible people miss out because they don’t claim it on their taxes. The average EITC recipient gets an average of $2,482 by claiming the credit. You could be eligible if you’re a low-income earner.
- Home Office Deduction: If you work from home or run a business from where you live, you might be able to deduct up to $1,500 on your taxes.
- Lifetime Learning Credit: With the Lifetime Learning Credit, you can claim up to $2,000 in qualifying education expenses.
- Student Loan Interest Deduction: If you made payments on your student loans, you can deduct up to $2,500 that you paid toward interest on your taxes.
- Tuition Fee Deduction: With the tuition fee deduction, you can deduct up to $4,000 in college tuition and other fees.
File your tax return
When it comes to filing your taxes, you must file both a federal and state return. If you lived in multiple states last year, you need to file a return for each state in which you resided.
Figuring out how to file taxes with your state’s government is dependent on where you live. For example, you don’t need to file a state return if you live in a place that doesn’t charge income tax. There are seven states that fit into this category:
- South Dakota
In New Hampshire and Tennessee, the states only tax income from interest or dividends, not your wages from your job or other sources of income.
You can electronically submit your federal and state returns using tax software, or you can mail in your tax forms. If you plan to mail in paper tax forms, check the IRS website to find the correct address.
How to track your tax refund
If you’re eligible for a tax refund, you can track the status of your return and find out when to expect your money by using the IRS’ “Where’s My Refund?” tool. If you opt for direct deposit, you can expect your refund in as little as 10 days after filing.
How can I pay my taxes if I owe the IRS money?
If you aren’t eligible for a refund and owe money to the IRS, you have different payment options. If you use software to prepare your taxes, you can usually pay the money you owe online when you file. You can often use a credit card or your checking account.
You can use the IRS payment tool if you completed your return on your own. Just make a payment with your checking account on the IRS website.
If you owe more than you can pay upfront, you can contact the IRS to set up an installment plan and make monthly payments until you pay your tax bill in full.
How to request a tax extension
If you’re traveling during tax season, experiencing family hardship, or have other issues that prevent you from filing your return by April 17, you can apply for an extension. By filing a tax extension request, you can get up to six extra months to complete your return.
You can submit an extension request online or by mailing Form 4868 to the IRS. The address you submit your request to is dependent on where you live, so make sure you check the IRS form to find the correct one.
An extension can give you a reprieve in filing your return. But if you owe any money to the IRS, you are required to pay it by April 18. If you miss that deadline, you could owe late fees and penalties.
Learning how to file taxes
Figuring out how to file taxes for the first time can be confusing, overwhelming, and stressful. Managing the process on your own can be difficult.
Using this guide — and the help of tax software or a professional tax preparer — can streamline the process, ensure accuracy, and get you the maximum tax refund you deserve.
For more information on how to file your taxes and why it’s so important to be accurate, check out these reasons you should never lie on your taxes.