Tax Issues for First Time Filers
Childhood is bliss for a variety of reasons, including not having to file tax returns. But soon the years pass, and it’s time to do your first tax return. It may seem like an overwhelming task for a novice, so here are some tips to make it through your first filing season.
Getting All of Your Ducks in a Row with Documentation
Around late January, you’ll receive a W-2 form from your employer. This form indicates how much you’ve made, in addition to how much state and federal income tax, Medicare payroll taxes and Social Security were withheld. If you are self-employed you will generally receive a 1099-MISC showing the compensation you earned from various sources during the year. This form only shows your income since there is no withholding on self-employed income. Self-employed individuals are supposed to make estimated tax payments during the year instead of having paycheck withholding.
Since you haven’t filed before, it’s just one reason why turning to a professional tax consultant is a wise decision. A professional can help you set up your record keeping and advise you of which documents to keep, and for how long. It’s always easier if you set up a tax folder to keep organized. Keep your earnings statements, receipts of deductible expenses and other statements, such as student loan interest, contributions to an IRA and investment earnings.
Talking with Your Folks
If you’re a student filing for the time, it’s important to speak with your folks first. Your parents may be planning to claim you as a dependent or claim some of your college expenses on their own return. According to the IRS tax rules, dependents of another tax filer cannot claim a personal exemption on their own return nor qualify for education credit. Consulting with a tax professional with help both you and your parents decide the correct way to file.
Claiming All of Your Allowable Deductions
Don’t leave any money on the table. It’s easy to overlook allowable deductions and tax credits when you’re new at this. For example, the IRS allows you to deduct state and local sales taxes or state income tax (if your state has one). Other allowable tax deductions include child tax credit (if you have children) child care credit, business related expenses, job search expenses, earned-income tax credit, charitable contributions, home taxes and mortgage interest, and more. It’s important to note that not all business-related expenses are tax deductible. For example, buying a gift for clients is generally limited to $25, while traveling expenses associated with your business are. When it comes to deductions, think like a pack rat and keep all of your receipts. If you’re unsure about what your allowable deductions are, speak with a tax professional. This tax expert will let you know of those unknown tax deductions to maximize your return.
Picking a Tax Pro
Inexperienced tax filers are often an easy target for tax con artists. To avoid scams, don’t use a tax preparer who bases their fees on the size of the refund they can get for you. Connect with an experienced and reputable tax accountant through TaxBuzz.com. Since 2010, TaxBuzz.com has been providing a free marketplace for both novice and seasoned tax filers. Read real reviews by verified clients, get local geo-location mapping and gain insight into the listed tax professional’s qualifications.