6 steps for 20-something tax filers
Better Money Habits has six simple steps to help you avoid rookie mistakes and take advantage of savings opportunities, whether this is your first time filing federal income taxes or your fifth.
1. Know whether you need to file
You’ll need to file a tax return if you earned more than $10,400. If your parents claim you as a dependent however, you’ll need to file if you earned more than $6,350 in income or if you have unearned income from things like investments that were greater than $1,050, or if your gross income was more than the larger of $1,050 or your earned income plus $350. The IRS has a simple quiz you can take to figure out if you need to file or not.
2. Know which benefits you’re eligible for
By getting a sense ahead of time of which credits and deductions you may be eligible for, you can avoid a last-minute rush to get necessary documentation and save each item as it comes in. Here are a few to consider:
- Saver’s credit. If you file as single and your adjusted gross income is $30,750 or less, you might be eligible for this tax credit if you contribute to a retirement plan.
- Student loan interest. Depending on your modified adjusted gross income, you can deduct up to $2,500 in interest payments.
- Moving expenses. If a new job leads you to relocate more than 50 miles, you might be eligible for a deduction.
- Job search expenses. If you have a job but are in search of another one in the same field, job search expenses such as headhunter fees and resume printing might be deductible.
- Charitable deductions. If you itemize your taxes, you can generally deduct charitable donations.
- Freelance expenses. Depending on your circumstances, you might be able to claim deductions for work-related expenses such as industry subscriptions, office supplies, or travel expenses.
3. Be organized all year long
Once you know which tax benefits you’re likely eligible for, you can keep track of paperwork throughout the entire year and therefore making tax season much less stressful. Keep receipts for things like charitable donations, job expenses and medical bills, student loan or investment statements, and other items mentioned in step 2. Having such records all in one place can help you decide whether to itemize. And, be sure to keep relevant tax filing documents for 3-7 years, depending on the type of item.
4. Get familiar with the paperwork
Sometime in January or February, you should receive tax forms from your employers during the previous year. Full-time employees will receive a Form W-2 detailing your earnings, as well as which taxes were withheld. Freelance and contract workers will likely receive a Form 1099-MISC detailing what you earned. You might also receive documents showing interest earned on investments (Forms 1099-DIV or 1099-INT, for example), or student loan interest you’ve paid (Form 1098-E). If you’re a college student, or have a dependent who is, you’ll receive a Form 1098-T to help you figure out education expenses-related deductions and credits. Be sure to keep such paperwork handy because it will help you fill out your return more easily.
Tip: You are unable to file taxes until you’ve received a Form W-2 or 1099 from each place you worked during the year. You then use those documents to fill out a Form 1040, the IRS form for individual income taxes. There are three versions of this form to choose from.
5. Know your timeline
Forms W-2 and 1099 usually arrive in January or February, giving you about two months to prepare your tax return before the end of tax season in mid-April. Experts generally suggest filing tax returns earlier rather than later, as early filing can help prevent against tax-related identity theft. Plus, if you’re owed a refund, you’ll get it that much sooner!
Tip: If you think you might need some extra time to file, you can typically file an extension, giving you six more months. However, if you owe the government money, you will still need to pay your estimated taxes in full by the end date of tax season to avoid penalties and interest.
6. Determine how to file
You can file with the IRS either online or by mail. The IRS has Free File Software for those who make $66,000 annually or less. You can also look for a Volunteer Income Tax Assistance (VITA) site by using the IRS's locator.
Tip: Check the IRS website to make sure you use a registered tax preparer if you opt for in-person assistance from a tax accountant.
Let America Saves help you make the most of the money you save this tax season. It all starts when you make a commitment to yourself to save. Take the first step today and take the America Saves pledge to save money, reduce debt, and build wealth over time. And it doesn't stop there. America Saves will keep you motivated with information, advice, tips, and reminders to help you reach your goal. Think of us as your own personal support system.
ATTN young tax filers: still new to the process? Check out these 6 tips from #BetterMoneyHabits on how to file >> http://bit.ly/2o4kUAa @AmericaSaves
- Written by Madalyn Pemberton
- Category: Blog
- Published: 13 February 2018