Tax Filing for Beginners: A Step-by-Step Guide

Introduction

Filing your taxes for the first time - or any time - can be intimidating, but it doesn't have to be. With the right guidance, you'll understand the basics and get through tax season with confidence. This step-by-step guide will walk you through everything you need to know about filing taxes as a beginner, whether you're filing on your own or seeking professional help.

Step 1: Gather Your Documents

Before starting your tax return, it's essential to gather all the necessary documents. Here's some of what you'll need:

• W-2: Provided by your employer, this form shows your income and taxes withheld

• 1099 Forms: If you're a freelancer or have side income, these forms report earnings

• Investment Income: Forms like 1099-INT, 1099-DIV, 1099-B, or Combined 1099 report interest or dividends you received and stock sales you made

• Other Income Sources: Documentation for things like unemployment, rental income, or self-employment earnings.

• Deductions and Credits: Forms related to deductions like student loan interest, mortgage interest, or education credits (Form 1098-E, Form 1098, Form 1098-T, etc.)

• Personal Information: Social security numbers for you, your spouse, and any dependents.

Step 2: Choose How to File

There are many options for filing your taxes but the three main ways are:

• DIY Online Software: Tax software (like TurboTax or H&R Block) simplifies the process, guiding you through questions and forms.

• Hire a Tax Professional: If your situation is complex (multiple incomes, investments, business ownership) or you don't feel that you want to prepare your taxes yourself, a CPA or tax advisor can ensure accuracy and maximize deductions.

• Free Filing Options: The IRS offers free filing services for simple tax returns or for those with the confidence to fill out their tax forms by hand. Many states also offer free filing for state returns.

  
  

At Lindy Parker, CPA we are a virtual CPA firm, which means that we prepare your taxes for you as tax professionals, but you don't need to leave the comfort of your home. We use a secure online portal where you can upload your tax documentation, fill out a quick organizer to make sure we have a complete picture of your tax situation, and we take it from there. We also offer flat-fee preparation fees, so you know what your return will cost based on your tax situation, rather than receiving a surprise bill at the end based on how long it took us.

Step 3: Understand Your Filing Status

Choosing the correct filing status impacts your tax rate and available deductions. Most common statuses include:

• Single: If you're not married and you don't qualify for other statuses.

• Married Filing Jointly: If you are married as of the last day of the year and you and your spouse file together on one return.

• Head of Household: If you are unmarried with a dependent (like a child), you may qualify for this status, which offers more tax benefits than filing as Single.

Step 4: Calculate Your Income

Using the documents that you collected in Step 1, you need to calculate your income and ensure the appropriate values are entered on the correct lines of your return.

• Total W-2 income should appear on line 1a

• Interest and dividends should appear on lines 2a, 2b, 3a, and 3b (as appropriate) and Schedule B if required.

• Retirement income should appear on lines 4, 5, and 6 a and b as appropriate.

• Self-employment, gig, or freelancing work will be shown on Schedule C, Schedule 1, and line 8.

• Rental income will be reported on Schedule E, Schedule 1, and line 8.

Whether you file with an online software, a tax professional, or on your own, it is critical for you to understand how your return should look. No matter how you file, the responsibility for the information contained on your return is yours as you are the one signing the return. Coding errors, shady preparers, and simple mistakes have all been known to happen. You should review the income showing on your return to make sure that all of your income, and no extras, are reported.

Step 5: Calculate Your Deductions and Credits

Both deductions and credits reduce your tax bill. You can read more here to understand the difference between deductions and credits.

You can reduce your taxable income by taking either the standard deduction or itemizing deductions:

• Standard Deduction: Most beginners will use this; for 2024, it's $14,600 for single filers, $29,200 for married filers, and $21,900 for heads of household. People 65 or older may be eligible for a higher amount.

• Itemized Deductions: If you have significant deductible expenses (e.g., mortgage interest, medical expenses, state or property taxes), it may be worth itemizing. Use your software or talk to your tax professional to see if itemizing your deductions will exceed the standard deduction.

You can reduce your tax liability directly by taking credits. Common tax credits include:

• Earned Income Tax Credit (EITC): Available for low- to moderate-income individuals and family who have earned income (i.e. wages or self-employment income, not interest or dividends)

• Child Tax Credit: For those with qualifying dependents under 18.

• Retirement Savings Contributions Credit (Saver's Credit): The Saver's Credit is a tax credit for eligible contributions to your IRA, 401k, or other qualifying retirement plan. You can save for your future and get rewarded for it.

Keep in mind that deductions and credits have specific requirements and limits, such as income caps, that you will need to be aware of when claiming them. If you are unsure whether you qualify for any deductions or credits, it is a good idea to consult a tax professional to help you determine your eligibility.

Step 6: File Federal and State Returns

Before you file your returns, double-check your information:

• Check for any data entry errors: Make sure all Social Security numbers, incomes, deductions, and credits are calculated and entered correctly.

• Review for missing forms: Ensure you have included all income forms (like W-2s or 1099s).

• Estimate your refund or payment: Based on your return, you'll either owe money or be eligible for a refund. If you owe, be sure you know how to make your payment before the deadline.

Once everything looks good, submit electronically.

• Federal Taxes: This is required for everyone who meets income thresholds. The IRS offers electronic filing, which is faster and more secure. The IRS also typically processes refunds faster for e-filers.

• State Taxes: If your state has an income tax, you'll need to file a separate return for the state. Most tax software handles this alongside your federal return, though you may need to enter some additional information.

Step 7: Track Your Refund

If you are expecting a refund, you can track the status on the IRS's "Where's My Refund" tool. Refunds are generally issued within 21 days for electronically filed returns.

Filing your taxes for the first time can be a breeze with the right preparation. As you grow more familiar with the process, you'll gain confidence and be able to file more efficiently each year. If you are unsure about any step, it is always a good idea to seek help from a tax professional. At Lindy Parker, CPA we are here to make filing your taxes a breeze. Check out our personal and business tax preparation services to see how affordable our professional tax preparation services can be.