Recent Posts
Mentorship March 6, 2017
Does the idea of filing your taxes terrify you? If so, you aren’t alone … in a 2016 survey, millennials were the age group most likely to report tax-related fears. However, filing your taxes is actually a lot less complicated than you might think, especially when you’re first starting out. Plus, we guarantee you’ll feel like a real adult after your first filing.
To find out the tips every tax virgin needs to know, ENTITY got the scoop from Lyndon Encenzo, a certified paid tax return preparer with thirty years of experience.
Check out these six quick and easy tips to turn this tax season into a struggle-free zone.
If you are a young professional earning money from a single employer, chances are that your taxes will be a breeze. In fact, taxes don’t really become complicated until you begin to acquire more assets or work in multiple states each year. And by that point, you’ll likely have years of tax filing experience under your belt. If anxiety is still hitting you hard, though, knowing a few tax terms can help.
Some basics?
W-2 form: This is the form you should receive from your employers by the end of January. It’s basically a financial grocery list that states where you worked, how much you earned and how much taxes you paid from your wages.
1099-MISC form: Are you an independent contractor? Then this is what you’ll find in the mail instead of a W-2. It still shows how much money you made, but no taxes were withheld. This means you’re responsible for figuring out your own income taxes.
1098-E: If you are in the real world and busily paying back your student loans, this form is your new BFF. It shows the IRS how much you’ve paid in interest in your student loans, part of which you can write off.
“Write off”: This means to deduct an expense from your earnings, reducing your total taxable income.
Now that you can talk the talk, it’s time to walk the walk. So take a deep breath, stop clutching that W-2 form so tightly, and let’s get started.
Remember all those fancy terms? Now it’s time to get your hands on all of them. “Most college students work and often times have multiple part-time jobs,” says Encenzo. “The first step is to ensure they have all their documents necessary to file their tax returns, such as W-2s and 1099s.”
You will likely plug several numbers from your W-2 straight into the 1040 tax form, no calculator required. So make sure you keep this piece of paper somewhere safe. It’s also important to realize that you may need different forms depending on your unique financial situation. For instance, if you recently graduated from college, you may want your tuition receipt handy. You can write off a maximum of $4,000 in education bills from the last year, so this from can be the secret weapon you need to save some extra money. To obtain other important forms related to your particular tax situations, Encenzo suggests checking out IRS.gov or FTB.CA.gov.
RELATED: 5 Apps That Will Help Budget Your Finances
If you’re a nervous first-time filer, don’t wait until the tax deadline to get started, either. While you will probably finish filing in one sitting, you’ll feel better if you give yourself a week-long cushion to figure everything out. The extra time gives you the freedom to Google anything that doesn’t make sense or call your parents with questions at a reasonable hour (versus 10 pm the night before taxes are due).
Speaking of calling your parents, if there’s one piece of advice Encenzo wants college students to follow, it’s to “always consult with a tax professional and communicate with your parents before filing your tax return.”
One of the most common tax issues caused by lack of communication is multiple claims of dependency. “Normally, parents have higher incomes with higher tax rates, and it is more beneficial for parents to claim the dependency exemption,” Encenzo explains. However, “first timers usually claim exemption for themselves. Then, when the parent’s return is filed electronically, it is automatically rejected because the dependent child has already claimed exemption on his or her return.”
This double claim can cause your family to lose even more time and money “because the parent’s or the child’s return must be amended to maximize the tax savings.”
The moral of the story? Save yourself time, money and confusion by talking to your parents before you file.
Most states allow you to file your taxes online. Luckily for you, the younger you are, the more likely you’ll qualify for free, easy-to-use tax software from several companies such as H&R Block. As long as you make less than $62,000 per year, you can use free software that provides helpful prompts and simple explanations. Bye bye tax stress! To avoid potential scams when filling out your taxes online, choose a program from approved Free File providers on the IRS website. Pick one, follow along and you’ll finish your taxes fast.
If you make more than $62,000, you can still file online for free with an electronic-filable form. The electronic form does not provide the same level of guidance and assumes you know how to do your own taxes. So if you qualify for the Free File software, use it. Rejecting it is basically like turning down the chance to use the teacher’s notes on your midterm.
RELATED: 5 Reasons Women Should Make Their Own Money
Good news: If your employer has already deducted taxes from your pay, you may be entitled to a refund check.
Getting a refund check is the best part of doing your own taxes. Although it feels like free money, this actually happens when you have already paid more than you owe for the year.
To get your tax refund ASAP, opt for the direct deposit option. This will route the money directly to your savings or checking account, which is much faster than waiting for a check in the mail. Combined with an electronic filing option, you will receive your refund in 21 days or fewer.
RELATED: Smart Investments Millennials Can Make to Prepare For the Future
The biggest curveball most people don’t expect during my second attempt at taxes was needing information from the previous year’s tax return form. You can save a PDF of your tax return to Dropbox, Google Drive or another secure service to maintain access even if you switch computers or software programs. Since you will probably go months without thinking about your taxes after successfully completing them (hallelujah), this digital copy will help you keep track of numbers like your Adjusted Gross Income and Tax PIN in between filing periods.
You can also begin the habit of saving any receipts, invoices or mileage logs that you can use as documentation for write-offs next year. These receipts can range from charitable donations to child care expenses, while the mileage log can help if you travel regularly for work. According to Encenzo, the most important part of taxes is to “give your fair share to Uncle Sam.” Having easy access to last year’s filing and this year’s deductible expenses can make doing your part even easier the next time April rolls around.
When you’re filing taxes for the first time, every confusingly-named form, unexpected required paperwork and long conversation with your parents can feel ten times more complicated. However, filing your taxes for the first time doesn’t have to be a huge challenge. In fact, with the right tax tips, you can go from tax virgin to tax queen in no time!
