Time to File Your First Tax Return? Helpful Tips
Coordinate with your parents, don’t miss deadlines, keep track of paperwork
If you’re in your late teens or early- to mid-20s, you might be filing your first tax return this April. Whether you mowed lawns before heading off to college, waited tables while pursuing your degree or started your first full-time job after graduating, most, if not all, of the money you made in 2019 is now on the IRS’s radar.
You must file a federal return, known as a 1040, if you’re single, under the age of 65 and made gross income (that’s money before taxes) of at least $12,200 in wages or salary in 2019 (twice that amount if you’re married and filing jointly). The filing requirement gets tougher (and more complicated) for anybody with a part-time or non-staff job. If you had $400 of net earnings (what you actually pocketed after subtracting business expenses), you have to file a return. Don’t forget that you likely must file a state return, too.
Let’s assume that you’ve gathered up the documents you need to meet the April 15 deadline. (Note that the IRS already has copies of most documents and is looking to see that they match what you put on your return.) These documents include:
W-2 statements from your employer that show your wages or salary as a staffer
1099-MISC statements from employers that paid you as a part-time worker, non-staff contractor or freelancer
Student loan documents (Form 1098-E)
Bank statements detailing interest income (Form 1099-IT)
Investment account statements (forms 1099-DIV, for any dividends you received, and 1099-B, for any capital gains, meaning investment profits or losses you had)
Personal records detailing any cash you made, perhaps through babysitting or power-washing your neighbor’s mossy garage door.
Four things a first-time filer should focus on:
To DIY or not. You can prepare and file returns yourself — potentially at no cost — or pay an accountant up to several hundred dollars to do it. Because first returns are often simple, it’s a good idea to dive in yourself before your tax life gets complicated with mortgages, children, gains and losses in the stock market and maybe a small business. Nine out of 10 taxpayers file electronically vs. mailing in a ketchup-stained form.
If you made no more than $69,000 in taxable income last year, you can take the DIY route for free, thanks to the IRS’s Free File program. Many commercial tax-preparation services offer free preparation and filing that you do online yourself, but you have to read the fine print to see if you qualify — and watch out for extra fees.
Comparing all of the options from the top tax-prep software companies can take several hours. But it’s worth the effort, in part because you will absorb basic tax concepts that you’ll face for the rest of your life, as well as major changes introduced by the 2017 tax code overhaul.
If you worked part-time jobs, you may owe 15.3% self-employment tax, which covers Social Security and Medicare. No, you’re not paying additional taxes. That’s because people with salary or wage income through full-time jobs already have those taxes withheld from their paychecks. H&R Block has a primer on how to deal with this complicated tax.
Are your parents claiming you as a dependent? A dependent is any person a taxpayer supports financially and for which the taxpayer can potentially claim various tax credits.
Typically, most first-time filers are claimed by their parents as a type of dependent known as a qualifying child, meaning that you’re under the age of 19 or a full-time student under the age of 24. In this situation, your parents must support you financially, and you must live with them at least half of the year. If you are living in a college dorm or off campus, the IRS still considers that to be “living with” your parents. So you will probably tick the “I can be claimed on someone else’s return” box on your own tax return.
When your parents claim you as a dependent, it opens up potential deductions to them, including education credits and deductions for the interest that they pay on your student loan. It’s key for first-time filers to sync up with their parents on the dependent question to avoid their (or their parents’) returns getting rejected by the IRS.
Don’t blow off the April 15 deadline. Also, you may owe taxes:
If you can’t get it together by then, file an extension. You have until Oct. 15, 2020, to file a return.
Know that any taxes you might owe are still due April 15.
If you don’t file a return or an extension on April 15, you set into motion some truly expensive issues for yourself. First, there’s an onerous failure-to-file penalty of 5% of your unpaid tax bill for each month that you’re late in filing, and it can reach 25%.
On top of that, there’s a failure-to-pay penalty of 0.5% each month, plus interest, for your unpaid bill. That can also reach 25%.
If you go deer-in-the headlights for too long, the IRS can garnish your wages or put a lien on your property or assets. That can ding your credit score.