Adulting is a long-term crash course, covering things like honoring your debts, signing up for insurance and paying taxes. You might get nervous this spring when you think about filing your taxes for the first time, but taking a few simple steps can make it less complicated than you may think.
With a little planning and a calculator, you can knock out this hurdle and focus on the fun parts of being an independent, successful adult. Here are seven steps to guide you through filing your taxes for the first time.
- Add up your income
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Your taxes pull directly from your income, so you won’t be able to file anything if you don’t know what you made during the previous year. Getting that number depends on how you’re employed, which could fall under three categories:
Full-time: Your employer takes taxes out of your paycheck before you get it.
Contractor: Your employer doesn’t take taxes out of your salary.
Self-employed: You pay yourself through your business or services.
A full-time employee will receive a W-2 form with all the tax information and numbers you need to file for the previous tax year — from your adjusted gross income and income to any retirement and healthcare contributions. If you’re an independent contractor, you should receive a 1099 form, which also reports the amount of money you were paid in the previous year — although unlike full-time employees, your taxes won’t have been withheld by your employer, so you’ll likely owe the IRS instead of receiving a refund. Self-employed workers are responsible for keeping track of their own finances, as well as reporting their income and paying taxes during tax season.
If you have a boss but are unsure about your employment category, send them a quick email and ask. They’ll clarify your status so you can better understand how to file your taxes.
- Subtract your deductions
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Once you know your annual income from last year, you might wonder how to save on tax deductions. Deductions reduce how much you pay when you file, which is a huge benefit for contractors and self-employed individuals. You’ll subtract the standard deduction first, which is a deduction amount everyone gets automatically based on their circumstances or “filing statuses,” like if you’re single, married or the head of your household.
Itemized deductions are another way to lower your tax bill — and there are a lot of deduction types you might not be aware of. If you bought anything to support your company, like a computer or office supplies, collect those receipts. You should also add up how much you spent on gas for business travel or rent for your workspace. If you donated to any charities, bought school supplies, contributed to a retirement fund or paid student loans, those could all qualify you for tax deductions, too. Luckily, if you’re filing with TurboTax, you’ll have the option to enter these expenses and claim deductions as you walk through the filing process.
- Get started early
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Getting started in January or February is always a good idea. You’ll have more time to investigate last year’s income and expenses. You can also use that extra time to learn how to boost your tax return and get more money in the spring.
Even if you don’t work with an accountant on your taxes, you can look into money-saving refund opportunities, such as:
1. Taking tax credits for any child care or assistance
2. Altering your exemptions by adjusting your W-4, the tax form you fill out when hired, with the HR department — although this can only be done for the year ahead, not last year
3. Investing in home improvements and making your property greener
The federal government can help you reduce your tax bill if you have the time to investigate the many ways to claim credits and deductions.
- Collect your 1099 forms
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As you learn how to file your taxes, make sure you read about 1099 forms and how they affect you. They arrive in the mail between February and April, so keep an eye out for them if you’ve invested in the stock market or done freelance work in the past year. Freelancers and contractors will get these, and anyone who owns stocks should receive or print 1099 forms for each holding. If this doesn’t sound familiar to you, or you don’t freelance or own stocks, don’t worry about it — you won’t get a 1099.
These forms prove additional income sources, so the IRS knows you aren’t trying to avoid potentially paying taxes on it. What you pay will depend on the amount earned, and whether or not your deductions offset that income.
- Record your retirement savings
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While you figure out how to save on tax deductions, record how much you saved for retirement last year. Your individual retirement account (IRA), 401(k) or catch-up contributions could reduce your tax bill by a significant amount, depending on your bracket — which is the percentage by which you’re taxed depending on your income. Someone in the 24% bracket would lower their income tax by $1,440 if they contributed up to $6000 to an IRA. If you set aside anywhere up to max 401(k) amount allowed in a calendar year —$19,500 — you could deduct up to $4,680. Since you’re just starting out, it’s unlikely you’ll contribute this much, but any contribution could count, so it’s worth keeping track!
There’s also the saver’s tax credit for low- to moderate-income workers. If you meet the income requirements, you could save more money — anywhere from 10% to 50% depending on your adjusted gross income, which is line 8b if you filed Form 1040 — if you added to certain retirement accounts like a 401(k), IRA or the federal Thrift Savings Plan, a tax-deferred savings plan for federal employees.
- Investigate self-filing options
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Most people work with an accountant to file their taxes because they know what to look for and how to save more money. Their services sometimes come with a hefty price tag, but you don’t have to worry. You can always investigate self-filing options, like the IRS’s Free File program, Turbo Tax or H&R Block, to name a few.
The IRS has a guide to filing taxes with this program so you avoid paying hundreds of dollars to an accountant. You can also use other websites that may include a live chat appointment with a tax expert for a much smaller fee than traditional offices.
If you only need a W-2 to file taxes, doing it on your own is easy. Match the numbered boxes on your W-2 with the online form. Individuals with multiple W-2s or 1099s might find a better middle ground with an online self-filing service that checks your work before submission.
However, if you’re really struggling with understanding all the details your first time around, it’s always a good idea to look for help. HerCampus writer Mary Katie Farrell suggests you find someone who can answer your questions. “I’ve used TurboTax to file my taxes for the last few years with part-time jobs because I have simple things to fill out, but sometimes your taxes can get complicated and you’ll need help,” she says. “If you’re hesitant and think you may be filling something in incorrectly, I recommend finding someone to consult (even if that means having to pay them money — it’s annoying, but you want to make sure you’re filing correctly and taxes are confusing).”
- Stay on track
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Sometimes life gets busy, and months fly by before you realize it. Annual tax returns are due on April 15 every year, but if you pass that date, you might need to pay a failure-to-file penalty of 5% and fill out a tax extension form, also known as the IRS Form 4868.
To avoid these challenges and extra steps, organize the steps above into an actionable timeline to make sure you have ample time to file before the April due date. No one wants to be late!
Surviving your first taxes as a full-timer doesn’t have to be challenging. Use these tips to collect everything you need and file your return on time. You can always speak with an adviser online or in-person if you have questions. You’ve got this!