It may not be the most glamorous milestone you’ll reach on your way to full-time adulting. But eventually, it’s time do your own taxes.
More than a third of Millennials — 37% of young people — rely on the accounting firm of Mom and Dad to either prepare or pay for a CPA to do their taxes, according to a TaxAct poll.
But by taking over the responsibility of handling your taxes, you’re snagging a crucial understanding of your financial liabilities and how your money works. Or at the very least, doing them will keep you clear of penalties for not filing or paying.
Don’t panic, but it’s time. Taxes are due on April 17th, 2018.
“One of the biggest issues for first-time tax filers is that they wait until the weekend before they are due,” says Mark Kohler, CPA and senior tax adviser for TaxSlayer. “We make bad decisions when we are in a crisis.”
Ask yourself these questions before doing your taxes for the first time.
Do I need to file?
If you earn below a certain amount, you might not even need to file a return.
To find out, enter your age, your gross income for the year (that’s all the taxable income you’ve earned including money, goods, property), and your filing status (whether you’re filing as a single person, married filing jointly, married filing separately, or head of household) into this IRS tax filing tool.
If you don’t know your status, use the IRS’s filing status tool.
For example, if you are under 65 years old, filing as a single person and have earned $10,400 or more in gross income, you’ll need to file a tax return. And if you and your spouse are both under 65 years old and are married filing jointly, you’ll need to file a return if your gross income is equal to, or exceeds, $20,800.
What do I need to file?
A hefty part of doing your taxes is pulling together all the paperwork and documentation.
To prepare your taxes you will need to have your personal information (Social Security number), your income (wage and any freelance work, also any Social Security or unemployment income) and receipts of other types of income (from real estate, royalties, trusts). You’ll also need a copy of last year’s tax return.
Most wage-earners have what they need, income-wise, from a W-2, which you should have received from your employer. But don’t let a 1099 form for income you earned doing a side job or other gig melt your brain. It is counted as freelance income and you may have expenses to claim to offset your income.
“People need to realize that freelance income opens up a new door for deductions,” says Kohler. Look at your expenses. He says the mileage, cell phone use, home office and computer use could potentially be deductible.
“My neighbor paid zero tax on the $5,000 he earned because he could wipe it out with deductions,” Kohler said.
Keep in mind, you’ll need to have specific forms and documentation for certain circumstances, including those who receive health care through the Affordable Care Act or students who pay tuition.
How do I file?
Now that you’re moving away from having your parents or a CPA do your taxes, you have a few DIY options.
If you earn less than $66,000 you are eligible for free e-file, which means you can use name-brand tax software and file for free.
Those earning more than that will need to pay for tax software that will allow you to e-file. Alternatively, you can prepare a paper copy of Form 1040.
The IRS advises that if you are owed a refund, it will arrive within three weeks of your return being received if you e-file. If you mail a paper copy of Form 1040, it may take six to eight weeks to get your refund.
What else do I need to know?
The IRS reminds you: file only one federal income tax return for the year no matter how many jobs you had, how many W-2 forms you’ve received, or how many states you lived in during the year.
Also, file only one return per calendar year — even if you haven’t gotten your refund or haven’t heard from the IRS since you filed. (There may not be as much feedback as you’d like, but resist the urge to go full-blown stalker on the IRS.)
Just because your parents aren’t doing your taxes doesn’t mean they are out of the picture. You need to talk to them to find out if they are claiming you as a dependent.
“You don’t want to claim yourself as a dependent without talking to your parents first,” says Kohler, “because it could trigger a domino effect resulting in an audit because you’ve been claimed twice.”
CNNMoney (New York) First published March 30, 2018: 10:39 AM ET
Source : CNN
