When you file your taxes for the first time, you need to follow a lot of rules precisely, and there may be some details you are unfamiliar with. When you have a fundamental understanding of the procedure, it isn't that difficult, but it does require patience and attention to detail. Anyone filing for the first time—or anyone who has filed before but needs additional guidance—will learn everything they need to get started in this guide, including the definitions of key terms and the forms you'll require.
Relevant Lessons
- The U.S. tax system, which is how the government obtains a portion of your income and earnings, is probably what you owe.
- Generally speaking, you have until April 15—April 18 in 2022—to properly file your taxes, either electronically or by mail.
- There are five filing statuses available from the IRS, and your decision will have an impact on the standard deduction and other regulations.
- Tax benefits like credits and deductions can help you lower the amount of money you owe to the IRS.
- While you can file your taxes manually on your own, using digital tax software or applications is frequently advised, and having a tax expert review your paperwork.
Basics of tax
The basic principle of the American tax system is that you probably owe the government a portion of your income and earnings. Your employer typically deducts income tax from each of your paychecks throughout the year based on how much you'll likely owe. The amount you will owe may vary depending on your marital status, the number of dependents you have, and the tax benefits you are eligible to claim. Until you file your tax return, you won't know for sure whether you paid too much in withholding or too little. And you'll get a refund if you overpaid. If you are underpaid, you must make up the difference by the filing deadline, which is typically April 15. The official filing deadline for 2022 is Monday, April 18. This is the year you will file your 2021 tax return.How to Begin Filing Taxes
One of the simplest methods to prepare your tax return is to use tax software. Based on your responses, these programs will fill out the necessary forms for you after asking you a few questions about your spending and income habits. Another choice is the Free File Alliance, which is only available to qualified people. Taxpayers who made $73,000 or less in 2021 can prepare their returns for free thanks to a partnership between the IRS and a few tax software companies, including TaxAct and TaxSlayer. You can select the tax software or provider that best suits you despite some having lower income thresholds and other eligibility requirements. For example, Cash App Taxes (formerly Credit Karma Tax) and TurboTax Free Edition both have free versions. However, these versions are only available if you have a very straightforward tax situation, and there may also be income restrictions. No matter how much money you make, the IRS also offers Free File Fillable Forms that can be printed out, filled out, and used to file your returns. If you feel more comfortable doing it that way, you can send the forms electronically or by mail.Examine your tax records.
Once you have decided how to file your taxes, gather your W-2 forms and any other tax paperwork you may have gotten after the beginning of the new year, such as 1099 forms. If you have a single job, you will only have one W-2. If you earn any interest or dividend income or are an independent contractor, you might have multiple 1099s. You should send 1099 to every financial institution and to any company or organization that paid you more than $600 for non-employee services during the year. Before February 1, 2022, all documentation must be received. Check every box on your W-2s. Each has a label. You will be informed of your annual income as well as the total amount of taxes withheld from your pay. Note: Regardless of whether you file your return manually on paper or electronically using software, these documents serve as the foundation for your return.Understand Your Filing Status
The IRS offers five filing statuses, and picking the right one is crucial because it affects other rules and your standard deduction. Single: You are single if you have never wed, are legally separated from your spouse or have never been married. Married filing jointly: If you and your partner are married, you file a single joint return. Married filing separately: Married individuals who choose to file separate tax returns despite being married. Qualifying widow(er): If you meet the requirements, you were married, but your spouse passed away within the last two years. To be eligible for this status, you must have a dependent child, and you can only use it for two years following the year your spouse passed away. Head of the family: You are "considered unmarried" if you bear this designation. Even though you and your spouse are technically married, you didn't share a residence during the year's final six months. Additionally, you must pay for more than half of the cost of maintaining your home during the tax year and have a qualifying dependent who resides with you. There are also additional rules that apply. A word of caution: Before claiming either of the qualifying widow(er) or head of household filing statuses, you may want to check with a tax expert to ensure you qualify.Effect of Deductions and Credits
Because you are eligible for at least one tax break, you won't have to pay taxes on all of the earnings that are listed in box 1 of your W-2 form. Tax deductions and tax credits are two types of tax benefits. Tax deductions lower the amount of your overall income that must be paid in taxes, whereas tax credits directly lower the amount you owe the IRS. The tax benefits that affect student loan interest, college tuition costs, and credits that can help you save for retirement are the most significant for young people. Other common credits include the Earned Income Tax Credit, the Child Tax Credit, the Credit for Other Dependents, and the American Opportunity Credit, which is an educational credit. You could deduct personal exemptions for yourself, your spouse, and each of your dependents from your taxable income before the Tax Cuts and Jobs Act (TCJA), which became effective in 2018. That came to an end in 2017.The Default Deduction
Depending on your filing status, the IRS allows you to deduct from your income a set amount known as the standard deduction. The standard deductions are as follows for the 2021 tax year:- Individual taxpayers: $12,550
- Separate filing fees for married couples: $12,550
- Married people filing jointly or a widow(er) who qualify: $25,100
- household heads: $18,800
Making Itemized Deductions
Either take the standard deduction in full or break it up into individual deductions. Every qualifying expense you paid during the course of the year must be listed and entered on a separate form called Schedule A, which needs to be submitted with your tax return. Either or, as the saying goes. You cannot both itemize your expenses and claim the standard deduction. Itemizing is only advantageous if the sum of all paid, allowable expenses exceeds the standard deduction for your filing status. If not, you would be required to pay taxes on more income than necessary. Some taxpayers must itemize because they are unable to take the standard deduction. This would apply if you are married, filing separate returns with your spouse, and your spouse has already filed and itemized deductions. After that, when you get back, you must follow suit. With some exceptions, the IRS states that you must itemize if you are a non-resident or an alien with dual status at any point during the tax year.How Tax Credits Function
Refundable or non-refundable credits are first applied to any taxes you owe, regardless of whether they are available. That sum may be decreased or eliminated by a non-refundable credit. For instance, you might owe the IRS $800 but discover later that you are eligible for a $1,000 non-refundable credit. You would no longer owe any money to the IRS as a result, but they would keep the remaining $200. If your claimable credit were refundable, the IRS would send you $200.Tax brackets: An Overview
The tax rate you pay depends on how you file. Each rate (or bracket), which covers a different portion of your income, has a different income range depending on your filing status—the percentage tax rate on your top income increases as your income increases. A single taxpayer with a yearly earning of more than $523,600, for instance, will pay a top tax rate of 37 percent in 2021. A single filer with an annual income of $9,950 or less is subject to a 10 percent income tax. If you are married and filing jointly, these figures rise to $628,300 and $19,900, respectively.Suggestions for Filing Your Tax Return
Even if you decide to use tax filing software, you might also want to try filing your return on paper. You can make use of this as a teaching tool by checking to see if the calculations you made on paper and in the software agree. The IRS offers a list of free forms that you can use to assist, as was already mentioned. Consider visiting a tax professional after you've finally filled out your return so they can review your paperwork as well. Schedule a meeting well in advance, particularly if the tax filing deadline is drawing near. Tell the office that all you want is someone to look over your return before it goes to the IRS. Many tax offices offer that service for no cost or a small fee.