Filing taxes for the first time is a huge milestone for any young adult. In the past, your parents may have handled it for you, but now it’s your turn to take charge of your finances and file your own tax return. Here are some quick tips to help you through the process the first time.
Gather your documents. Collect all the documents needed for your taxes before you begin, such as your W-2s, 1099s, tax forms that report other types of income, tax deductions, and receipts. If you file without one of these forms, you might need to amend your tax return later.
Take a minute and think about anything you did in the past year that might impact your taxes, such as:
- Changing jobs
- Opening a new savings account
- Buying or selling a house
- Selling stocks or mutual funds
- Paying college tuition or student loan interest
Decide whether your parents can claim you as a dependent. Many young adults get financial assistance from their parents, even after they start earning their own money. You might still live at home with your parents, get money from them to help with living expenses, or they may be paying for your education. If so, your parents might still claim you as a dependent on their tax return.
There are two ways your parents might claim you as a dependent:
• Qualifying child. If you’re under the age of 19 (or under age 24 and a full-time student) and your parents provide more than half of your financial support, your parents can likely claim you as a qualifying child.
• Qualifying relative. If you’re not a qualifying child, your parents might be able to claim you as a qualifying relative if you earned less than $4,300 in 2020, lived with your parents all year and your parents paid more than half of your total support for the year.
If your parents claim you as a dependent, they might be able to get certain tax benefits, such as education tax credits and the Credit for Other Dependents. You still must file a tax return if you had enough income, but when you prepare your return, you’ll have to indicate that you can be claimed as dependent on someone else’s return.
Consider relevant tax deductions and credits. Tax deductions and credits can lower your overall tax bill and even increase your refund, so you want to make sure you take advantage of everything you’re entitled to claim.
Some common tax deductions and credits for first-time filers include:
• Education credits like the American Opportunity Credit and the Lifetime Learning Credit
• Student loan interest deduction
• Standard deduction or itemized deductions
• Earned Income Tax Credit
• Home office deduction if you are self-employed
File electronically. Nowadays, you can do almost everything from paying your bills to ordering lunch online, and filing your taxes is no exemption. Using TurboTax makes the tax filing process simple because it walks you through a series of questions, fills out the right forms, and helps ensure you claim all the right credits and deductions. Plus, Alltru Members can save by using TurboTax.
Bottom line. Filing taxes on your own can be simple and cost-effective. Once you know what not to do, you can feel confident filing your first return. Take your time — don’t rush when preparing and filing your return. Mistakes are less likely to happen when you’re prepared. And if a mistake does occur, try not to stress too much about it. Remember, you generally have up to three years from the date your return was filed to correct your mistake by filing an amended tax return.
Until next time,