Got your first job? Here are some tax tips for first time filers
NEW YORK (AP) — The deadline to file your taxes is less than a month away, and if you're doing them for the first time, you might be feeling added pressure.
'It's an incredibly daunting and stressful experience for many of them,' said Miklos Ringbauer, a certified public accountant based California.
Planning ahead, doing your research and talking with experts can help first-time filers feel better about their taxes, Ringbauer said.
The deadline to file your 2024 taxes is April 15. If you run out of time, you can file for an extension until Oct. 15. The extension is only to file your taxes, not to pay them. If you think you will owe taxes, you should pay an estimated amount before the deadline to avoid paying penalties and interest. If you expect to receive a refund, you will still get your money when you file your taxes.
Here are some expert recommendations if you are filing taxes for the first time:
Gather your documents
The first step is to gather all the relevant documentation, said Eva Simpson, vice president of Member Value, Tax & Advisory Services for the American Institute of CPAs.
'Tracking down documentation is key, especially if they may be in college and have correspondence sent to their parents house,' Simpson said.
Ringbauer also recommends that you make a folder, either physical or electronic, with all of the documents you need so it's easier to file your taxes.
While the required documents might depend on your individual case, here is a general list of what everyone needs:
— Social Security number
— W-2 forms, if you are employed
— 1099-G, if you are unemployed
— 1099 forms, if you are self-employed
— Savings and investment records
— Any eligible deduction, such as educational expenses, medical bills, charitable donations, etc.
— Tax credits, such as child tax credit, retirement savings contributions credit, etc.
Talk to your parents
Many young adults are still receiving some financial help from their parents when they're ready to file their taxes for the first time. It's important that first-time filers communicate with their parents in case they are being claimed as dependents, Simpson said.
'Being claimed as a dependent affects their standard deduction and eligibility for certain credits,' said Simpson.
Having a conversation with your parents will prevent you from claiming tax credits that you might not qualify for if they claim you as a dependent. If your parents claim you as a dependent, you will add this information to your tax return.
Know about tax credits and deductions
Knowing if you are eligible for any tax credits and deductions is a crucial step when filing your taxes, Simpson said. Tax credits can lower the amount of taxes you owe or increase the amount of your refund. Some relevant tax credits for first-time filers include the American Opportunity tax credit and the Earned Income credit.
When it comes to deductions, you can either opt for a standard deduction or itemize. Itemizing generally only makes sense if your itemized deductions add up to more than the current standard deduction of $14,600 for a single filer and $29,200 for a married couple.
'In many cases, first-time filers won't need to be itemizing their expenses,' said Simpson.
Doing research or asking a professional for the types of deductions and tax credits you qualify for can save you money,
Include investments and gig economy income
If you freelance, work in rideshare or sell your clothes online in addition to your part- or full-time job, you must add this income to your tax returns, said Tim McGrath, a certified financial planner based in Chicago.
Forgetting to add tax income from freelance work in your tax documents is a common mistake by young filers, Ringbauer said.
Some gig workers receive 1099 forms from their employers while others don't, but both must document their income and expenses so they can be added to their tax returns.
Know the resources available
Simpson recommends that first-time filers look into the multiple resources available to file taxes for free or at a low cost. One of the is the new Direct File program, which allows people in 25 states who have very simple W-2s to calculate and submit their returns directly to the IRS for free.
Aside from Direct File, IRS offers free guided tax preparation that does the math for you. This is available for people who make $79,000 or less per year. If you have questions while working on your tax forms, the IRS also offers an interactive tax assistant tool that can provide answers based on your information.
The AARP also offers a tax-aid locator where you can search for tax assistance near you.
Double check to avoid mistakes
Mistakes can happen to everybody, but deliberately ignoring income can have more consequences, Ringbauer said. In general, if you make a mistake our you're missing something in your tax return, the IRS will audit you, which means they will ask you for more documentation.
A common mistake is failing to declare a source of income such as gig work or selling products online, said Ringbauer. This, he said, should be taken very seriously.
'One of the biggest challenges is not taking it seriously, not caring about the nuances,' Ringbauer said. 'It has to be accurate and exact information whether you self prepare or you're doing it with a professional, because life is exact.'
If you need to correct an error in a tax return you already filed, you can file an amended return.
Keep your records
It's always good practice to keep a record of your tax returns, just in case the IRS audits you for an item you reported years ago, Ringbauer said. The IRS recommends that you keep your documents for at least three years and up to seven depending on your situation.
Ringbauer recommends that his clients keep records of their tax documents in a digital folder on a cloud platform of their choosing. Password-protecting your tax folders can also add an extra layer of protection against scammers.
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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
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