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Filing your taxes for the first time may seem like a daunting task, but fear not!Several free resources are available – both online and within the community – that can help you prepare an accurate return in a timely manner.
Here are a few tips designed to help you file your tax returns!
TUTORIAL: Personal Income Tax Guide
Gather Your Documents
You will need your Social Security number (as well as those of your dependents, if you have any), mailing address or bank account details, and most importantly, you will need to know how much money you earned in 2011 and how much of your income was withheld by federal and state governments. For many people, income and tax withholding information can be found on form W-2: Wage & Tax Statement. Your employer should have this form send to you by Jan. 31, 2012, so look for it in the mail or at work.
Of course, not everyone will receive W-2 forms due to the nature of their employment during 2011. For example, those who earned income via freelance work might receive a Form 1099-Misc: Miscellaneous Income, whereas those who were unemployed and received unemployment compensation might receive a 1099-G: Certain Government Payments. Have a look at the list below for a few examples of other types of forms where income and tax withholding data is reported.
Here are some other income-related forms that you might receive:
- Form 1099-Misc: for those who earn income from rent, royalties or through contract or freelance work
- Form 1099-Int: for those with interest income generated by a bank account, savings account, money market funds, etc.
- Form 1099-G: generally, for those who received unemployment compensation and/or state & local tax refunds
- Form 1099-Div: generally, for those who earned dividends
- Form 1099-R: for those who received distributions from retirement plans, profit-sharing plans, an IRA or from certain types of insurance policies
If you paid interest on student loans, made contributions to an IRA or if you paid qualified higher education expenses, then you might receive certain forms from your financial or educational institution. Hold onto these forms, as you might need them to prepare your 2011 tax returns (you can search for specific forms and their related instructions on the IRS’s Forms & Publications site). (To help you on your taxes, check out The Ultimate Tax-Time Checklist.)
Federal or State Return
Once you have gathered your information for the 2011 tax year, you need to determine whether or not you need to file a federal return and a state return. Whether or not you need to file a return depends upon your age, filing status and the amount of money that you earned during 2011 minus any deductions (also referred to as adjusted gross income, or AGI). For example, if you are single and younger than 65 years of age, you may need to file a return if your adjusted gross income was higher than $9,500. Of course, even if you are not required to file a return, it may be in your interest to file, as you may be eligible for certain refundable tax credits, such as the Earned Income Tax Credit.
Have a look at the Internal Revenue Service’s online interactive tax assistant, which should help you determine whether or not you need to file.
Prepare and File Your Return
There are several free and low-cost resources available to help you prepare and file your tax return. Below, we outline two options that might be appealing to a first-time filer: Free File, an online resource, and Volunteer Income Tax Assistance, a program wherein IRS-certified volunteers personally help you prepare your return.
- Free File: The IRS has partnered with several private companies to offer free or low cost online tax preparation; these online tax preparation programs typically prompt you for information and complete your return based on the data you provide. Free File companies have their own eligibility criteria, but if you earned less than $57,000 during 2011 then you are likely to find a free online tax preparation solution. Visit the IRS’s Free File site for more information.
- Volunteer Income Tax Assistance (VITA) is a program designed to help prepare taxes for those whose annual income is less than $50,000 per year. IRS-certified volunteers prepare returns free of charge at designated locations throughout the community; check the VITA website or call 1-800-906-9887 to find a centre near you.
If you do not meet the eligibility criteria for either option, then have a look at some of the providers listed in the Free File site, as they generally offer solutions for higher income individuals for a fee.
Once you have filed your return, be sure to keep a copy of it! Especially if you plan on filing electronically next year, as your AGI in 2011 can be used to electronically sign your 2012 returns.
File on Time
Your federal income tax return must be filed by April 17, 2012, so be sure to get your returns (and your payment, if you owe.) submitted by April 17, as fees and interest charges tend to be steep. Generally, state returns are due on the same day as federal returns, but be certain to check your state’s instructions to ensure that is the case (and remember, there are nine states without a state income tax; have a look at this IRS site to see if yours is one of them).
The Bottom Line
Filing your taxes for the first time may seem intimidating; just keep in mind there are many free resources out there designed to help you. With a bit of patience and resourcefulness, most people should be able to prepare and file their taxes accurately and in a timely manner at little to no cost. Good luck! (For more assistance, read The 7 Most Common Tax Mistakes.)
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This story was originally published by Investopedia.