As you consider how to file your taxes for the first time, you may want to consult with a tax professional who can make sure you get the best tax breaks, someone who knows tax laws and can help maximize your tax refund or reduce your tax bill.
When you file your taxes for the first time, you will want to determine your dependency, tax filing status, and the tax credits and deductions you can take. Following these steps will help you as you decide how you will file your annual tax return.
Before You Begin
Before going through the steps to file your taxes, it’s important for you to determine if you need to file a tax return. The IRS (Internal Revenue Service) has an interactive tool called the Interactive Tax Assistant for United States citizens or resident aliens who meet certain requirements. Note: The tool only takes about 12 minutes to complete.
You will need the following information to use the tool:
- Your Filing Status
- The Amount of Federal Income Tax Withheld in the Tax Year
- Basic Information to Determine Your Gross Income
Even if you do not have to file a tax return, it may be beneficial for you to do so, especially if you can claim certain tax benefits. There may be other reasons that it might be smart to file your taxes even if you don’t need to. Speak to a tax professional for more information or contact our office for help.
Step One: Determine your dependency.
The big question here is, “Can someone claim you as a dependent on their tax return?” If so, that does not mean you should not file your own tax return. You may still want and need to file your own tax return. However, you may not be required to.
The easiest thing to do is to ask your parents or guardians if they are planning to claim you as a dependent this year when they file their taxes.
If you have a complicated tax situation, it may be best to get the advice of a qualified tax consultant to make sure your taxes are done the right way. Read more about claiming dependents with our blog post, Claiming Dependents: Your How-to Guide.
Generally, you can be a dependent if you are under the age of 24, and the person claiming you financially supported you more than half of the last tax year. If someone is claiming you as a dependent on their federal tax return, you may still want to file; you just won’t be eligible for all of the tax breaks you could take if you weren’t claimed as a dependent by someone else.
Step Two: Find out what your filing status is.
Determining your filing status is not always a simple thing to do, especially if you are married, but your filing status is very important because it affects your tax rate and certain tax benefits.
There are five options to choose from for a filing status when you file your taxes:
- Head of Household (HOH)
- Qualifying Widow/Widower with Dependent (QW)
- Married Filing Jointly (MFJ)
- Married Filing Separately (MFS)
Typically, if you are married, you would want to file a joint tax return because you get the most tax benefits that way, but this is not always the case.
If you do qualify, head of household filing status is usually the most beneficial tax filing status because it has the highest standard deduction (along with other tax breaks).
Your tax filing status does affect your tax bill because of the tax rate you qualify for. The tax rates and brackets you will use to file your taxes change each year. For the latest rates, please refer to our table of tax rates, which is updated each year.
Step Three: Put your tax documentation together.
If you are expected to file a federal return or state return, you will want to have all documentation put together. The most important and helpful backup material is typically the returns filed in the prior year or any previous year’s returns, but if this is your first year to file your taxes, you can begin keeping excellent documentation this year and use it for future years.
You should receive all tax documentation and forms you need to file your taxes, including the following documents. Keep in mind; these are just some examples of the documents you should receive by January 30 if they apply to you.
- W-2: Wage and Tax Statement
- Form 1099-MISC: Miscellaneous Income
- Form 1098-E: Student Loan Interest Statement
- Form 1098-T: The Tuition Statement
Generally, your documents will come from your places of employment and schools you attended during the tax year. If you do not receive these documents by the end of January in the new year, check with those companies or institutions to get your documents. The IRS will not have them for you.
Step Four: Figure out which tax credits and deductions you can take.
There is an exhaustive list of tax credits and tax deductions that you can take when you file your taxes. We won’t name every single one on here, but this will give you an idea of some of the ones you could take.
View some of the more popular tax credits, check out this list:
- The Tax Credit for the Elderly or Disabled
- The Adoption Tax Credit
- The Earned Income Tax Credit
- The Additional Child Tax Credit
- The Health Coverage Tax Credit
- The Child and Dependent Care Tax Credit
- The Lifetime Learning Tax Credit
- The Child Tax Credit
- The American Opportunity Tax Credit
- The Tax Credit for Other Dependents
Read more about tax credits by checking out these other blog post:
To name a few of the more popular tax deductions, check out this list:
- The Home Office Tax Deduction
- The Standard Tax Deduction
- The Real Estate Tax Deduction
- The Tuition and Fees Tax Deduction
- The Student Loan Interest Tax Deduction
- The Charitable Contributions Tax Deduction
Read more about tax deductions by checking out this blog post:
Tax credits and tax deductions change each year. Plus, they can be quite difficult to work with for the first time; they often require separate forms and a knowledge of tax laws. It’s best to work with a qualified tax accountant when taking credits or deductions. He or she should be able to help you get the best tax benefits on your tax return.
If you were to get audited after filing taxes, you might wish you had worked with a qualified tax professional rather than trying to do it yourself. Often, a tax accountant knows the best tax credits and tax deductions you can take to maximize your tax refund or reduce your tax liability. The last thing you want is to be stuck with an unexpected tax bill that you cannot pay.
Step Five: File your tax return.
When filing your tax return, there are many ways you can go about doing this. You can electronically file using a free federal tax form, but this is not advised in your first year. If you do online tax preparation, you won’t need to have paper copies of your tax return to submit to the IRS, but you should still print it and e-file (file electronically), so you have a physical copy.
You will want a copy of all applicable forms you need. Some examples of the forms you may want to print out or get a copy of include the following:
- IRS Form 1040: U.S. Individual Income Tax Return Form
- Schedule C: Profit or Loss From Business
- Schedule SE: Self-Employment Tax
Be sure to write in pencil when you first write in your tax forms, as you may need to erase if you make a mistake, and whiting out the information can get pretty messy if you make a lot of mistakes. When you have it done correctly, you should go over and check your numbers one last time to make sure everything was done correctly. Then, you can write over everything in ink.
For more information on these forms, check out these blog posts:
- Small Business Taxes: What Can You File on Schedule C?
- How to Be Self-Employed: Your Complete Tax Guide
When you file your taxes, it’s a good idea to have a bank account associated with your tax return; this can be a checking or savings account, but the IRS needs a place to send you your tax refund if you are due one. If you want it swiftly, it’s best to have a bank account that they can send your refund to after you file your taxes.
If you are a student and will file your taxes for the first time, you will benefit from reading our blog post on College & Taxes: How to File as a Student. Alternatively, we have a whole article devoted to education and taxes that may help you out called Education and Taxes: What You Need to Know.
Filing taxes, while not the most glamorous part of being an adult, is something that just needs to be done. If you are about to file your taxes for the first time, you may want to work with someone who is qualified to make sure your taxes are done correctly. Plus, they are most knowledgeable about the best tax breaks for you to take and can help you file your taxes the best way.
At Borshoff Consulting, we know all about taxes and the best tax breaks for you. We offer individual tax services, business consulting and taxes, and more. Make sure you get in touch with us today for a free consultation. You can trust Indiana’s tax expert to help you as you file your taxes for the first time!