Filing tax for the first time could be tiresome and could be too hard to comprehend a lot of details that go into tax filing. This blog will help you understand the nitty-gritty of tax filing for the first timers
Collect your tax information in advance:
While filing the tax for the first time, the biggest activity is collecting the income and expenses documents for the whole year. It is very challenging to collect all the documents in a limited time. So, collecting them all in advance will make your tax filing process easier.
Now, you must be thinking about what documents we are talking about?
These documents include W-2s, 1099s, tax forms that report other types of income, tax deductions, and all the receipts you received the whole year. If you file taxes without any of these forms, you may end up needing to amend your tax return later. Also, you need to think about anything you did in the last year that could affect your taxes. These include changing the job, opening a new savings account, selling stocks or mutual funds, and college fees or student pay loan interest.
Apart from all these, don’t forget items like printer ink, parking & business-related tolls, and other expenses. Always keep a notebook with you or track your business profits electronically. Business expenses reduce your self-employment tax and your income tax, so you shouldn’t forget any of that.
Organize your information:
After collecting all your documents, organizing them is also very important, and it is very easy to do so.
If you have a small business or other self-employment income, make a list or spreadsheet of all the income and expenses of your business for your future convenience. Also, don’t forget to organize possible credits, such as child and dependent care credits. Once your information is organized, everything will be very easy.;
Figure out if your parents can claim you as a dependent:
The most important thing you should know while filing the taxes is whether you are classified as a dependent or not? Have your parents paid most of your expenses in the last year? If so, you would generally be considered their dependent for tax purposes. As a result, your parents are allowed to get a dependency exemption (in 2016) of $4,050 to have you as a dependent. In such a situation, you cannot claim the exemption on your return for yourself.
Your parents can claim you as dependent in two situations:
- Qualifying child: Your parents can claim you as an eligible child if you are under 19 or 24 or if you are a full-time student and your parents provide you with more than half of your expenses.
- Qualifying relative: If you earned less than $4,300 in 2021, lived with your parents, and provided more than half of your expenses, then they can claim you as an eligible relative.
Include relevant tax deductions and credits:
Tax deductions and credits can reduce your overall tax bill and even increase your refund, so you should take advantage of everything you’re entitled to.
Following are common tax deductions and credits for first-time filers:
- Earned income tax credit
- Student loan interest deduction
- Education credits such as American
- Standard deduction or itemized deduction
- Opportunity Credit and the Lifetime Learning Credit
- Home Office Deduction in case you are Self-Employed
Don’t forget about your gig economy income:
Millions of young people in the UK participate in the gig economy as rideshare drivers, delivering packages or food, part-time or full-time freelancing, or working as project-based consultants. If you have earned income from freelancing, don’t forget to include this income in your tax return.
- Depending on your earnings, you may get a 1099-MISC for your work. But in case you don’t get it, you still have to report the income to the IRS.
- You must report your gig work income on Schedule C attached to your Form 1040.
- Generally, you can deduct any expenses related to your gig work, such as miles driven, supplies, and advertising costs, on Schedule C as well.
Give yourself enough time:
Your first tax filing shouldn’t take much time, but that doesn’t mean you should file it too soon. Preparing for your tax filing at the beginning of the year relieves you of the deadline stress.
The deadline for filing state income tax returns varies from state to state. So, you need to make sure to give yourself enough time to do tax filing so that it is neither late nor early.