Tips for Your First Time Filing Taxes

Are you getting ready to file your own taxes for the first time? Good news! Completing a tax return is simpler than you think. Here are some basic facts to get you started.

Essential tax terms

Withholding – A withholding is a certain amount of money that is taken out of your paycheck each pay period and sent to the IRS for federal income taxes. Your withholdings pay your tax bill throughout the whole year, but they are only an estimated amount. When you file your return, the IRS can see if you paid too much or too little. If you paid too much, you get a refund. If you paid too little, you’ll owe more taxes at tax time.

Credit – A tax credit is an amount of money that is used to lower how much you owe in taxes. Sometimes, a credit can come back to you as a refund even if you don’t owe any taxes. Other credits are non-refundable, so if you don’t owe any taxes, you don’t get any money back.

Deduction – A deduction is a dollar amount you can subtract from your taxable income. As your taxable income is reduced, the amount you owe in taxes also decreases.

Adjusted Gross Income (AGI) – Your AGI is not the same as your taxable income. It is your total earnings minus some specific deductions, also known as “adjustments” or “above-the-line” deductions. Your AGI is used to determine if you are eligible for even more deductions and credits that are taken “below the line.”

Why you should file taxes

If you have been earning income and money is being withheld from your paycheck for income taxes, you may be entitled to a tax refund. One thing is for sure: you won’t get your refund if you don’t file your taxes.

Are you a dependent? If someone else claims you as their dependent and they include your income on their return, you cannot file a return for the same income. But if you earn more than $12,000, you should be filing your own return. You can still be claimed as a dependent even if you file your own taxes.

Basic tax forms

If you work a regular job, you should receive a Form W-2 in January from your employer. If you work multiple jobs, you will have more than one W-2. You will need to collect all of them before you begin filing your tax return.

If you have a side hustle and you are paid as a contractor, you will get a Form 1099 that includes your income information.

If you have student loans, your financial institution should send you a Form 1098-E with your necessary tax information. If you have taxable scholarships, you’ll receive a 1098-T.

What if you don’t have your forms?

If you don’t receive your salary information at the beginning of the year, it doesn’t mean you don’t need to file. Certain businesses – like Airbnb, Amazon, Etsy, and PayPal – report your income to the IRS on their end, but they aren’t required to send you a tax information form if your income or transactions are below a certain threshold. If you are self-employed, you need to keep really accurate records about your income and your expenses for your own reporting. If you work a regular job, you can simply ask your manager (or bank if you need loan information) for a copy of the form you are missing.