Filing your taxes for the first time can be overwhelming. The good news is that a little preparation can reduce a lot of the stress and anxiety new filers experience at tax time. Here, our legal practice breaks down the key steps and offers a peek behind the curtain, exploring best practices for record-keeping and minimizing tax liability. This intro guide on how to file taxes for beginners can help the new generation of taxpayers, people in their 20s, 30s, or beyond who recently got married, or whose circumstances have changed significantly since their last filing.
How to File Taxes for Beginners: Get Help or Do It Yourself?
A frequent question we receive is if this is something you should DIY. If you’re a W-2 employee with a side hustle, then the IRS Free Filing service or one of the online services should be sufficient.
However: If you’ve started or have been operating a business, buying and selling assets (real estate, exotic cars, watches, weapons), or have multiple income streams, it’s probably better to consult with an expert. You might miss out on the opportunities discussed here if your situation is more complex.
When Are Taxes Due?
Individual tax returns are generally due on April 15 every year, though the exact date may be adjusted to avoid weekends. If you cannot meet the tax filing deadline, you can ask for an extension by submitting Form 4868 to the IRS before the due date. Requesting an extension pushes the deadline out six months, giving you until October to submit your complete return.
Business tax returns for your S corporation are typically due on March 15th each year. Be mindful of this deadline if you have this tax structure!
Pro Tip: An extension only applies to your return, not your tax payment. If you think you will owe taxes, you must submit your estimated payment by the April due date or face penalties.
What Documents Do I Need to File Taxes?
At the beginning of January, watch the mail for important tax disclosures and forms. Income statements such as W-2s or interest statements may be available electronically, so check your online platforms to gather these forms prior to filing your return.
- W-2. You’ll get a W-2 form from each employer you worked for showing your annual wages and how much tax was withheld.
- 1099. If you did any freelance, contract, or gig work, you may receive 1099 forms showing how much you were paid. Third-party platforms such as Venmo and PayPal may also issue 1099s. Also, if you’ve receiving interest or dividends, you’ll get a 1099 from the institution.
- Tax ID. You’ll need your Social Security number or ITIN (individual taxpayer identification number) to submit your return.
- Personal information. You may need to provide basic information like your birthday, address, a copy of your driver’s license or state ID, and your bank account (to receive a refund by direct deposit).
What’s My Filing Status?
One of the first questions you will be asked when filing is about your filing status: are you filing singly or as a couple? This initial decision can significantly affect your tax liability and the amount of your refund.
Single
Taxpayers who are unmarried, divorced, or legally separated by state law may file as single. It’s how most first-time beginners will file taxes, even if their parents can claim them as dependents.
For example, if you’re under 24 and living at home or your parents are paying your expenses (such as rent or college tuition), your parents could claim you as a dependent to lower their tax burden. On your own return, you’ll need to report your status as a dependent.
Married Filing Jointly
The IRS provides certain family-friendly deductions and tax credits to joint filers, particularly those with children. While the majority of married couples file jointly, it might be beneficial to calculate your taxes both ways—filing jointly or separately—to see which affords you a higher refund.
Couples filing taxes in the middle of a divorce have the option to file as “married filing jointly” or “married filing separately.” An experienced lawyer and a tax advisor can help you choose the right method for you.
Pro Tip: Couples who file their taxes individually can later amend the return to file jointly. However, a couple cannot turn a joint return into two individual returns.
Married Filing Separately
It might make sense for married couples to file separately in some circumstances. For example, if one spouse underwent medical procedures and had high healthcare expenses, the couple might receive a larger deduction by filing individually.
Head of Household
Unmarried taxpayers with dependents could receive a higher deduction by filing as Head of Household. To qualify, the taxpayer must have paid more than half the household costs for themselves and a qualified dependent, such as a child or an elderly relative.
If you’re unsure about your filing status or want to see how you might qualify because of changed circumstances, the IRS offers this free Filing Status tool.
What Are Deductions?
Deductions are expenses and payments that you are allowed to subtract from your gross taxable income when calculating your net taxable income for the year.
Common deductions include:
- Mortgage interest payments
- Charitable donations
- Medical expenses (over a certain threshold)
- Retirement account contributions
- Student loan interest
- Educator expenses
- Certain work-related expenses.
Deductions help reduce your taxable income, lowering the amount of income tax you owe. The government lets you deduct these amounts to encourage things like home ownership, raising children, charitable giving, and saving for retirement.
We cannot stress this next point enough: The taxpayer is responsible to prove eligibility for deductions. The IRS may challenge any deduction taken. Again, YOU must be able to show that a deduction was legitimate.
What’s the Standard Deduction?
On your return, you have the option of taking your deductions in one of two ways:
Standard Deduction
The standard deduction is a fixed average amount based on your filing status. It’s the quicker and easier option because you don’t need to document or track any expenses. The amount changes every year.
- In 2024, it’s $14,600 for single filers, $21,900 for heads of household, and $29,200 for joint filers.
- The 2023 amounts are $13,850 for single filers and $27,700 for joint filers. If you’re filing as a head of household for 2023, the standard deduction is $20,800.
Itemized Deduction
An itemized deduction requires you to tally up actual expenses for things like mortgage interest, charitable donations, medical costs, etc. Itemizing takes more time because you have to provide documentation and proof of the expenses, but it’s worth it if your total deductions are more than the standard deduction.
Pro Tip: Only one calculation method is allowed on a return. When filing jointly, both spouses have to select the standard deduction or itemize their deductions.
Which Deductions Can I Claim?
Properly claiming eligible deductions can result in substantial tax savings each year. However, be sure to consult current IRS guidelines to ensure you qualify for any deduction you claim—and always keep documentation proving expenses.
Your deductions will vary depending on your age, location, assets, income, and expenses. In general, you could be eligible for the following when filing taxes for the first time:
- Student loan interest. Graduates and current students can claim up to $2,500 in federal and private student loan interest, even if someone else is paying the loan.
- Donations. You don’t need to make million-dollar donations to qualify for charitable giving deductions. Contributions to someone’s Kickstarter, Facebook fundraiser, or public TV or radio drives can add up little by little. If you volunteered for a charity, the mileage it took to get there is fully deductible at 14 cents per mile.
- Medical expenses. Unreimbursed medical expenses are deductible if they total more than 7.5% of your income. In addition, you can claim mileage for medical travel at the rate of 22 cents per mile.
- Childcare. As of 2023, the IRS is allowing an income-limited tax deduction for daycare, after-school programs, camp programs, and babysitting expenses for working parents.
- Business expenses. Self-employed taxpayers can deduct expenses like mileage, office supplies, and the portion of their residence used as a home office.
- Educator expenses. Teachers can deduct eligible classroom supply costs over $250.
- Retirement savings. Contributions you made to a traditional IRA or 401(k) may be tax-deductible.
What Are Tax Credits?
When it comes to how to file taxes, beginners don’t often realize the power of tax credits—dollar-for-dollar reductions on the amount of taxes you owe. For example, a $200 credit will take $200 off your taxes. If left unclaimed, you risk leaving serious money on the table.
Tax Credits for Students
- The American Opportunity Tax Credit (AOTC). The AOTC is a valuable tax credit for people paying for college expenses, such as tuition, books, supplies, and equipment needed for enrollment. A student pursuing their first four years of post-high school education and enrolled at least half-time in a degree or certificate program is eligible to reduce their tax bill by up to $2,500. Up to $1,000 of this amount is refundable – meaning if the credit reduces your total tax bill to zero, you may still receive a refund check for that $1,000.
- Lifetime Learning Credit (LLC). You may qualify for the LLC if you or a dependent are enrolled in any course at an eligible college, university, or vocational school to acquire or improve job skills. This includes graduate programs, career training programs, and even a single course you take to gain new job skills. To receive the maximum $2,000 credit, you must have paid $10,000 or more in qualified education expenses during the tax year. If you paid less than $10,000, you can claim 20% of your total qualified expenses. Best of all, there is no limit on the number of years it can be claimed.
Tax Credits for Parents
- Earned Income Tax Credit (EITC). The EITC is a credit for working individuals and families, especially those with children. The amount of EITC you can claim depends on your income, marital status, and number of children. In 2023, the maximum EITC ranges from $600 (with no qualifying children) to $7,430 (with 3 or more qualifying children).
- Child Tax Credit (CTC). The CTC allows you to reduce your taxes by up to $2,000 for each of your qualifying dependent children under age 17. To receive the full $2,000 credit per child, your gross income must be below $400,000 (married filing jointly) or $200,000 (all other filers). If your income exceeds those amounts, the credit goes down by $50 per $1,000 over those thresholds. The CTC can lower your tax bill to zero, but you will not get a refund on any unused portion.
Can I Get Free Tax Filing?
Beginners unsure of how to file taxes should start by looking into free filing services. The IRS estimates that over 60% of taxpayers—including first-timers—meet income and form requirements to file their taxes at no charge through the IRS Free File Program.
Personalized Estate and Tax Planning Guidance for Beginners and Beyond
Whether it’s your first time filing taxes or your fiftieth, we can help ensure you don’t leave money on the table. Email us at [email protected] today or schedule a 15-minute call to learn more.