8 Steps For First-time Income Tax Filers

1. Know If You Must File

If you can be claimed as a dependent on another taxpayer's return and you've had a job, even a part-time one, and earned more than $14,600 in the tax year—you'll need to file. Alternatively, if you didn't have a job but made more than $1,300 on unearned income (e.g., interest from investments), you will also be required to file. If you don't fall into either category and area dependent, you are likely not required to file a federal tax return.

However, if you did work and had taxes withheld, filing a return is the only way to get a tax refund. Plus, it'll serve as a lesson for filing taxes in the future. We recommend doing it.

2. Start the Process ASAP

The sooner you get started on your tax return, the sooner you can receive your refund check. If nothing else, at least begin the process now so you can figure out how much time you'll need to devote to filing taxes.

This means gathering all the necessary documents, perhaps talking to a tax professional, using an online tax filing program, or even just researching answers to any questions you might have. This will relieve some of the pressure when it comes to actually filing!

3. Monitor Your Income

You need to file a tax return if you meet or surpass certain income thresholds during the year. These thresholds can vary based on your filing status, age, and type of income, so it's important to understand the requirements for your specific situation. If you're employed, check your pay stub for the "year to date" income, and if you have more than one job, be sure to add up your income from all your employers to get an accurate total.

In addition to your wages, it's crucial to include income from other sources as well. This might include earnings from rental properties, profits from selling items or assets, dividends from investments, or interest accrued from savings accounts or other financial products. For freelancers or self-employed individuals, keep track of all business-related income and expenses, as these will be necessary for accurately reporting your taxable income.

Remember, accurately reporting all income sources not only ensures compliance with tax laws but also helps you avoid potential penalties or audits. Keeping organized records throughout the year can make the filing process smoother and help you take advantage of any deductions or credits you may be eligible for.

4. Save the Right Paperwork All Year Long

Stay organized with your tax-related paperwork throughout the year to make tax season easier. Keep receipts for charitable donations, work expenses, medical bills, and other deductible items. This will help you decide whether to itemize or take the standard deduction and streamline the process.

After filing, retain your records for at least three years as recommended by the IRS, in case of audits or needed amendments. Digital tools can help manage and store these documents securely. Keeping everything organized not only ensures compliance but also aids in making informed financial decisions.

5. Choose the Tax Form that Applies to You

When you start to file your tax form, you should first choose one or several types that suit you. Here are some commonly-used IRS tax forms. Check how much income you've earned and which form is appropriate for your work status:

• Form 1040: This is the standard tax return form used by U.S. taxpayers. It is for individuals who need to report their annual income to the IRS and calculate tax liability. There's a variation called 1040-SR for seniors age 65 and older, which includes features like larger text and a standard deduction chart.
• Form 1040-NR: Used by nonresident aliens who are engaged in business or trade in the U.S. or have U.S. income on which tax was not fully paid.
• Form 1040-X: Designed for individuals who need to amend a previously filed tax return. Taxpayers use this form to make corrections to their tax filings for a particular tax year.
• Form W-2: This form is provided by employers to their employees. It outlines the total wages earned and taxes withheld during the year. Employees use this information to complete their individual tax returns.
• Form W-4: New employees fill out this form to inform their employers of the amount of tax to withhold from their paycheck. It's based on their personal financial situation, including other jobs and dependents.
• Form 1099: This series of forms is for individuals who receive income from sources other than an employer, such as independent contractor work, interest, dividends, or government payments. Form 1099-MISC for miscellaneous income and 1099-NEC for nonemployee compensation are common variants.
• Form 8862: Taxpayers use this form to claim certain credits after their claims were previously disallowed. It applies to those aiming to claim credits for Earned Income Credit, Child Tax Credit, or American Opportunity Credit again.

6. Learn Available Credits and Deductions

Getting a sense of which credits and deductions you may be eligible for can help you pull together the proper documentation. Here are a few to consider:

• Saver's credit. If you are not a full-time student and are not being claimed as a dependent, you may be eligible for a tax credit if you contribute to a retirement plan. The amount of the credit depends on your filing status and adjusted gross income. For the 2024 tax year, if your filing status is single, you may be eligible if your adjusted gross income is $38,250 or less. If you are married and are filing jointly, you may be eligible if your adjusted gross income is $76,500 or less. However, these numbers are subject to change in future tax years.
• Student loan interest. You can deduct up to $2,500 in interest payments, depending on your modified adjusted gross income.
• Charitable deductions. Donating to your alma mater or a favorite charity? Generally, you can deduct qualified charitable donations if you itemize your taxes.
• Freelance expenses. If you are self-employed, you may be able to claim deductions for work-related expenses such as industry subscriptions and office supplies.

If you think you may qualify for additional credits or deductions, check the IRS website.

7. Mind Your Deadlines

Having your tax documents arrive in January or February gives you about two months to prepare your tax return by the usual due date of April 15. Plan the date when you'll start your return, and make sure it's early enough that you can plan another session or two in case you need to spend time locating more documents or getting help.

In general, experts recommend filing tax returns earlier rather than later. The earlier you file, the better your chances of avoiding tax-related identity theft, a crime that's on the rise. Plus, if you're owed a refund, you will get it sooner.

8. Choose Your Filing Method

There are several options for preparing and filing your tax return. Learn about each so you can make the right choice for you:

• "Free File": If your adjusted gross income—this is a specific tax term which basically means your gross income minus certain tax deductions—is less than a certain limit, the IRS has free tax prep software that can make preparing your tax return easier with features that can help you figure out any deductions or credits you might be able to take.
• IRS online forms: If your adjusted gross income is higher than that limit, the IRS has electronic versions of the paper forms that will do the math for you, but they offer only basic guidance and won't give you the same kind of help figuring out which deductions or credits you might be able to take.
• Tax preparation software: If you want a bit more guidance, you can pay a fee to use these online tools, which are available through several providers. They'll walk you through how to prepare your tax return, and help you figure out any deductions or credits you might be eligible for.
• Tax preparer: If you realize that you need one-on-one help from an expert, you can go to a tax preparation firm or an accountant. Make sure you work with someone you can trust. You will be giving this person access to a lot of sensitive personal information, so choose a tax professional carefully. The IRS has a directory of verified tax preparers that may help you find a verified tax preparer in your area. While this doesn't guarantee their trustworthiness, it's a good place to start.

Remember that you may need to prepare and file state and/or local tax returns in addition to your federal return.