As the deadline to file taxes rapidly approaches, many first-time filers might find themselves under added stress and facing significant pressure. Preparing for tax season can indeed seem overwhelming, according to Miklos Ringbauer, a certified public accountant based in California. However, following a few preparatory steps and consulting with professionals may ease the anxiety surrounding the process.
One of the first crucial steps is to organize all necessary documentation, emphasizes Eva Simpson, Vice President of Member Value, Tax & Advisory Services for the American Institute of CPAs. This could be particularly important for young adults who may attend college and have documentation sent to family homes. Setting up a systematic physical or digital folder containing the vital documents can simplify your tax filing process. Essential documents include your Social Security number, W-2s from employment, 1099-G if unemployed, 1099 forms if self-employed, and records of savings, investments, eligible deductions like educational or medical expenses, and potential tax credits.
Next, it’s advisable to engage in a discussion with your parents, as young adults frequently receive financial aid from them and may concurrently be claimed as dependents. Understanding whether your parents claim you as a dependent is crucial as it can influence your standard deduction and eligibility for certain credits. To avoid mistakenly claiming credits you might not qualify for, ensure you communicate with your parents to inform your tax return accurately.
Knowing your eligibility for any available tax credits and deductions can significantly impact your tax outcome. Tax credits can reduce your owed amount or boost your refund. For example, the American Opportunity Tax Credit or the Earned Income Credit might apply to first-timers. On the deductions front, consider whether itemizing expenses is beneficial compared to taking the standard deduction. First-time filers generally find standard deductions more advantageous unless itemizing exceeds these amounts.
For those involved in freelance work, gig economy jobs, or sales activities, it’s imperative to include these earnings on your taxes. Tim McGrath, a Chicago-based certified financial planner, warns against overlooking these income sources, which is a typical mistake among new tax filers. Individuals in temporary or gig roles may or may not receive 1099 forms, but either way, this income must be documented for tax purposes.
Additionally, several resources are available to assist first-time filers, such as the Direct File program, which offers a no-charge filing service in certain states for individuals with basic W-2s. The IRS also provides free guided tax preparation for individuals earning less than $79,000 annually, along with an interactive tool to answer tax-related questions. The AARP also facilitates locating nearby tax assistance through their tax-aid locator service.
To minimize errors and avoid potential audits, it’s crucial to double-check your tax return for any mistakes or omissions. According to Ringbauer, willful oversights, especially those related to undeclared income like gig work, can have serious consequences. Accurately capturing all income and deductions ensures compliance and facilitates smoother processing.
Maintaining a record of your filed tax returns is advised, shielding against future audits or discrepancies regarding past entries. The IRS recommends retaining tax documentation for at least three years, extending up to seven under certain conditions. Digitally storing records on a secure cloud platform and using password protection can offer additional safekeeping.
Overall, although the process can feel daunting, proper preparation, careful attention to detail, and employing available resources can make filing your taxes for the first time a more manageable and less stressful experience.