You know you’re officially an adult when your parents no longer claim you as a dependent and you have to file your own taxes for the very first time. If you find yourself in this group, it’s time to buckle up and learn the ropes. The first tax filing season is always the most challenging and confusing. But after you do it once, it’ll all make more sense.
Let’s dig in and work through it together.
A Big Picture Overview of Taxes
Nobody likes giving part of their hard earned money to the government, but you’ll have much more respect for the process if you understand the purpose.
In essence, the U.S. tax system is based on the premise that all income-producing individuals owe the government a portion of their income and earnings. This money is used to fund the government, pay for infrastructure, support social programs, pay for salaries of government officials, etc.
Income tax is typically taken directly from your paycheck (before you ever touch it). However, in a gig economy where millions of people are self-employed and/or have side income, this isn’t always the case. Thus, it’s more important than ever for young American taxpayers to understand how the system works and what needs to be done in order to abide by the rules.
We’ll assume that you’re a W-2 employee and your employer does the proper thing and withholds a percentage of each paycheck to cover your taxes. The tricky thing is that this is just an estimate. Most people either underpay or overpay their taxes. The purpose of the tax return is to show the IRS how much you earned so that they can give you a refund or request payment for the amount still owed.
Do You Need to File a Tax Return?
If you’re reading this article, you’re likely already aware of the fact that you need to file a tax return. But just in case you still have some questions, we’re here to clear up the confusion.
Almost all adults – meaning anyone who is over the age of 18 and not a full-time student – will file a tax return. And even if you are a full-time student, but you have side income, you might want/need to file a return. (We say “want” because there are certain perks associated with filing that could result in a refund.)
If you’re seeking some additional clarity, the IRS has this tool to help people understand whether or not they have to file a return. You’ll just need to provide information on your filing status, federal income tax withheld, and basic information to help determine your gross income.
Tax Deadlines and Dates
While it can fluctuate by a day or two (depending on weekends and holidays), the standard tax filing deadline is April 15. It’s imperative that you get your tax return filed by this date; otherwise you could face penalties, fines, and other negative consequences.
Should you fail to file on time, you may be subjected to a “failure-to-file” penalty. This is usually calculated as up to 5 percent of your unpaid taxes for every month that your payment is late. The maximum penalty is 25 percent of your unpaid taxes. On top of that, you can be charged for taxes you haven’t paid – even if you haven’t filed. This is usually one percent of the unpaid tax amount for each month that you’re late.
Don’t think you’ll be able to file your tax return for some reason? You can file for an extension. The extension moves the deadline out to October 15. There are no eligibility requirements for getting an extension, but you do have to go through the proper steps to request one.
Gathering and Organizing Your Information
Let’s assume that you do need to file a tax return and that you’re planning to do it by the April 15 tax deadline. What you’re really trying to find out is how to file taxes. Well, it begins with gathering and organizing all of the relevant information you’ll need to fill out the proper forms.
In future years, you’ll want to set up a basic system for keeping and filing away important tax information. (We recommend having a physical folder in your desk drawer labeled “2019 Taxes” – or whatever the year is – as well as a desktop folder with that same label. This way you can toss files in throughout the year and spend less time hunting down documents come tax season.) For now, we’ll assume that you’re playing a little bit of catch-up.
For starters, you’ll need any documentation that pertains to your income and earnings. If you’re an employee of a company, your employer will send you a W-2 that reports your earned income for the year. If you’re a contractor or you do freelance work, you may receive 1099 forms. You’ll also receive 1099s for any interest earned on things like bank accounts.
Depending on your situation, you may also get documentation regarding things like health insurance coverage, real estate taxes, vehicle taxes, mortgage interest paid, student loan interest paid, etc.
Finally, gather any and all information on charitable giving, medical expenses, childcare expenses, and any other major life changes that occurred during the previous tax year. It’s better to have too much information on hand than to not have enough. This will make your job of filling out forms and filing your tax return way easier.
Choosing the Right Tax Filing Method
In order to file your taxes, you have to fill out state and federal tax returns. These tax returns consist of a variety of documents and forms. The ones you’re required to complete depend on your type of income, assets, and situation. You can fill these forms out in a variety of ways. Here are the three most common options:
It’s ultimately up to you as to how you want to file taxes each year. If you try one option and don’t like it, you can always go another route next year. Just make sure you stay involved in the process and that you remember to file on time!
Let Taxfyle Help You Out
It’s always a good idea to learn how to file taxes. But if this is your first time doing it, you might want some assistance. At Taxfyle, we can connect you with a U.S. based CPA who is experienced and licensed. Not only can they file your tax return for you, but they can walk you through each of your questions and provide the answers you need to enjoy total peace of mind. Click here to get started today!
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