So it's your first time filing taxes...
Here are some quick tips to get you started
By Nahshon Lora
Whether you like it or not, if you’re earning a consistent income, you’re going to need to pay taxes. And if this is your first time filing taxes, you may not know where to even begin. Here are some quick tips that will help get you started.
It definitely can feel like you need to learn an entirely new language when it comes to taxes. But knowing the basic terms can make filing your tax returns a whole lot easier to understand.
- Earned income: The wages and salary, commissions, bonuses, tips and professional fees that you’ve earned. It also includes taxable scholarships and fellowship grants.
- Unearned income: Investment-type income (interest on your savings account, for example) and unemployment compensation.
- Gross income: All income you’ve received (including earned income and any investment or retirement income), before deductions are taken from it.
- Net income: Your after-tax income once deductions are taken out of your gross income (such as payroll taxes and retirement plan contributions).
- Adjusted gross income: The taxable amount of your income remaining after deductions and other adjustments on your Form 1040 (see below). (Some people refer to this as “net income,” but it’s not necessarily the same thing.)
- Exemptions: A predefined amount of money you can deduct from your taxable income. For example, if you’re a parent, your dependent children qualify as exemptions.
- Standard deduction: A set amount of money that the federal government gives you (if you meet certain prerequisites).
- Itemized deductions: Expenses that can be deducted, like medical and dental, interest, taxes, casualty and theft losses, and charitable donations. These deductions decrease the amount of tax you owe.
- Filing status: Whether or not you are single, married or head of household determines what type of tax return form you use and how your taxable income is calculated.
- W-2 Forms: Wage-income forms from your employer, which you need to prepare your tax returns.
There are so many forms!
Different income tax return forms correspond to different life situations, and which form(s) you use depends on your specific circumstances. For example:
- Form 1040 is an annual income tax return that U.S citizens or residents need to file.
- Form 1040A is for individuals who have varied incomes and who want to take various deductions.
- Form 1040EZ is for single and joint (married) filers with no dependents.
- Form 1040NR is for nonresident aliens living in the United States.
- Form 1040NREZ is for specific nonresident aliens with no dependents.
- Form 1040ES is used by those who don’t have their taxes deducted right away from their income, like independent contractors and freelancers. Unlike the other 1040 forms that are for the previous year’s income and taxes, the 1040ES is used to calculate and pay estimated taxes for the current year.
All of these forms can be downloaded from the IRS website. If you don’t have access to a printer, most post offices, local libraries (during tax season), tax centers or local IRS offices have them.
What do I need before filling out my tax return forms?
Be sure you have:
- Proof of any tax exclusions, tax deductions or tax credits.
- Proof of identification.
- Your Social Security Number.
- Your statement of wages earned (W-2, W-2G, 1099-R, etc.).
- A copy of previous tax returns (if applicable).
What if I work out-of-state?
It’s not uncommon for people to earn income in a state that’s different from their state of legal residence – especially for young adults attending college out-of-state or people who live near state lines.
Some states have reciprocal agreements that allow residents of one state to request an exemption from filing a tax return in another state. But, if the state you work in and your “home state” do not have a reciprocal agreement, you will have to file a tax return for both your home state and the state you work in. Information about reciprocal agreements is available from your state’s Department of Revenue.
When are tax returns due?
Your federal and state tax returns are usually due on April 15 of every year. If April 15 falls on a weekend, then your tax returns are due on the closest following business day. If needed, you can use IRS Form 4868 to request a six-month filing extension.
The bottom line
At some point in life, almost everyone in the U.S. has to pay taxes. If you don’t, you’ll face big civil and criminal penalties (including fines and imprisonment). So it’s essential to understand how to file your tax returns – and how to file them correctly. If you need help, that’s ok. There are tax counselors and professionals that can help – often for a fee. You might also qualify for free tax assistance through the IRS.
Long story short – learning the basics will help you feel less overwhelmed when it comes time to file your taxes returns.
Nahshon Lora from Goshen, Indiana, interned at Everence during the summer of 2016 and is a member of the Goshen College Class of 2019.
Everence and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. Please consult with your own tax, legal and accounting professionals.