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How to File Taxes: 6 Tips for First-Time Filers

by
Steward Financial
on
2/23/2020
How to File Taxes: 6 Tips for First-Time Filers

Note: The tax filing and payment deadline for 2019 tax returns has been delayed from April 15, 2020 to July 15, 2020.

Filing your taxes is neither easy nor enjoyable, and that’s particularly true if you’re a first time filer. One of the first things you’ll need to do is decide how you want to go about it: do you want to engage professional help from an accountant or tax preparation service, use one of the popular tax software packages, or do it the old fashioned way and fill out the forms by hand? Whatever path you decide to follow, here are six important things you need to consider as you move ahead.

1. Do you even need to file taxes?

After years of being listed as somebody else’s dependent, having to file your own taxes can feel extremely unfair, or maybe even unnecessary if you’re not making that much money. There are a few different categories of adults who don’t have to pay taxes, but they are in the minority – chances are good that you will have to.

The variables that can change are your age, whether somebody else is still claiming you as a dependent, how much money you’re making, and what your filing status is. Even if you’re not making enough to owe taxes, filling out the forms might reveal the unexpected benefit of receiving a refund. One way or another, if you are eligible for tax credits (including education credits), paid estimated taxes, or had income tax withheld from your pay, you need to file a return.

2. Have your information organized.

Even the simplest, most basic tax filing requires a certain amount of information. Some of it, like your Social Security Number, you may know off the top of your head, while other information is included in forms given to you by your bank, your employer, and others.

You need to keep all of your information together and organized, regardless of whether you’re going to do your filing yourself or have somebody else do it for you. The more organized you are about keeping your income and expense information and proof of any taxes you’ve paid throughout the year, the easier the process will be. Keep your personal data, W-2 form(s), any 1099s that you’ve received, and records of unreimbursed medical bills, educational expenses, or contributions to retirement or tax-free accounts handy. You’ll also want to keep records of mortgage interest and property taxes paid, classroom expense (if you’re a teacher), charitable contributions, and all information on state and local taxes you’ve paid. Having all of that on hand will make preparing your taxes a much easier task.

3. Figure out the forms.

You have probably heard of IRS Form 1040. When you go through it, you’ll find worksheets that guide you through the answers you’re supposed to fill in to determine whether you owe or whether you’re going to receive a refund. Most of the information you need will be contained in the information you gathered from step 2 above. You may also find that your circumstances require that you use one of several different schedules for specific types of deductions and credits.

As you may imagine, it’s extremely difficult to know every deduction and credit you could be eligible for as an average taxpayer. For this reason (and many others), it’s highly recommended that you work with a tax professional for your tax filing.

4. Don’t leave it until the last minute.

Tax filing is something you have to do every year, and as a result you should build it – and the preparation for it – into your schedule. There are a lot of advantages to being ready and able to get it done quickly and ahead of time, and a lot of disadvantages to procrastinating or being late. Not only will you be charged a late-filing penalty of 5% of the amount due each month (or partial month) that your return is late, but the IRS will also charge you interest if you only pay a portion of what is due, usually at an annual rate of 5 or 6%. You can also get hit with a late-payment penalty of 0.5% per month up to a maximum penalty of 25% of your total amount due.

If you need more time, you can file for an extension by filling out and submitting IRS Form 4868, but that only eliminates the late filing fee. You still have to pay your taxes on time, and will be subject to interest and fees if you don’t. If you’re not sure of the exact amount you owe, do your best to guess and send the money in (with the extension paperwork) by the tax due date in April (or, for the 2019 tax season, July 15, 2020). The actual amount due can be reflected and corrected later, when you eventually file your completed paperwork. Overpayments will be refunded, and underpayment will have at least minimized what the total penalty would have been if you hadn’t sent in any money at all.

5. Do you want to go it alone, or get help from a pro?

There are pros and cons to doing your taxes yourself. It’s definitely a good skill to have, and many people get satisfaction out of accomplishing this task on their own. Unfortunately, the complexities of our tax code make it highly unlikely that you will get everything right when you do so, and you may end up cheating yourself out of deductions or credits to which you are entitled.

Tax professionals – whether CPAs, enrolled agents (EAs), or other types of tax preparers – know all the ins and outs of the paperwork and forms. This is the safest bet and is likely to save you money (and headaches) in the long run.

6. Know what to do with your refund… or your debt.

There is definitely something satisfying about figuring out your taxes and seeing that you’re getting a nice sized tax return – and something incredibly upsetting about ending up owing the IRS or state treasurer a ton of money. Either way it means that you’ve made a mistake during the course of the year, and it’s a good idea to fix it so that the same thing doesn’t happen again.

If you owe money, there’s a good chance that you haven’t had the right amount of tax withheld from your paycheck. Now is the time to fix that and have more taken out. The same is true if you ended up with a giant refund. As nice as it is to get that big check, if the money had been in your pocket during the course of the year, you could have been earning interest on it instead of letting the government get that benefit – or you could just have used it to pay your bills. The best way to address this situation is to hand in a new W-4 that more accurately reflects the right amount of withholding.

If you do calculate your taxes and see that you’re expecting a big return, make sure to set up direct deposit for your bank account so that you can get the refund faster.

While filing your taxes for the first time can be overwhelming, thinking through these six key topics will help ensure you file in an accurate and timely way that will minimize your tax liability.

Jon Osborn, EA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].   

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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