Personal Finance

5 tips to make first-time tax filing a breeze

Key Points
  • Generally speaking, if you are under 65 and earn $10,400 or more in a year, you need to file.
  • If your parents claimed you as a dependent for 2016, make sure you consult with them before you do anything.
  • Some breaks are available even if you do not itemize your deductions on your tax return.
Here are five tips to make first-time tax filing a breeze

For young adults who are about to file tax returns for the first time, the prospect can be intimidating to say the least.

The good news is that first-time filers are less likely to have complex financial circumstances that would result in hundreds of pages of tax documentation.

"It's usually pretty easy if you're just getting started," said Greg Hammer, CEO and president of Hammer Financial Group in Schererville, Indiana.

The IRS expects to receive close to 155 million individual tax returns this season, with a due date of April 17 (not the usual April 15).

For first-time filers, some of what they learn now won't apply next year: 2017 tax returns are subject to laws in effect before the massive congressional tax bill took effect Jan. 1. With few exceptions, the tax changes created by the legislation will apply beginning with your 2018 returns.

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Generally speaking, if you are under 65 and single, and earn $10,400 or more in a year, you need to file. Note to independent workers: If you earn more than $400 in net self-employment income, you are expected to file.

Also important: If your parents claimed you as a dependent on their 2016 tax return, you should touch base with them before you do anything.

If your parents can claim you as a dependent for 2017, it could limit tax breaks available on your own return. Additionally, it might make sense for your parents — instead of you — to take any available education-related tax breaks (more about those tax breaks below).

Here are some basics to help you successfully navigate your first stab at filing a tax return.

1) Check your mailbox

If you've haven't seen any tax forms in the mail, you will soon. Many are due to taxpayers by Jan. 31. That includes a W-2 from your employer and/or a 1099-MISC from any company you worked for as a contractor.

You also might receive other 1099 forms for interest and dividends above $10 earned in bank or investment accounts.

The theme here is income. And all those forms notifying you of your earnings also are sent to the Internal Revenue Service, so don't ignore them.

Other documents commonly received by young taxpayers relate to education costs.

The first, Form 1098-E, is sent by lenders if you paid $600 or more in interest on your student loan, according to TurboTax.

Even if you paid less than that in interest and get no form, you can deduct up to $2,500 in interest paid as long as your adjusted gross income is under $80,000 ($160,000 if married and filing jointly). This break is available without itemizing your deductions.

If you were in college during at least part of 2017, you also might get Form 1098-T. This is sent by your college and shows tuition and other education-related costs.

There are a couple of education credits available to taxpayers, and various information on this form helps determine whether you (or your parents) can benefit from one of the credits. Like the deduction for student-loan interest, these credits are available even if you don't itemize your deductions.

2) Don't overlook tax breaks

For 2017, the standard deduction for single filers is $6,350 and for married couples filing jointly, $12,700. Basically, unless you have deductions that total more than that amount, you will not itemize. Many tax breaks are only available to itemizers.

However, in addition to the deduction for student-loan interest or the education credits, there are other deductions you can take that don't require you to itemize. For instance, teachers can deduct up to $250 in unreimbursed classroom expenses even if they don't itemize.

You also get to take a $4,050 personal exemption for 2017, which reduces your taxable income. (The phaseout for taking personal exemptions starts at $261,500 for individuals and at $313,800 for married couples filing jointly). Be aware that if your parents claim you as a dependent on their tax return, you cannot take a personal exemption on your own return.

(Note: Much of the above will be different next spring when you file your 2018 returns, due to the new tax law.)

Another way to reduce your taxes is to contribute to a retirement account. Although 2017 has ended and most tax moves should have been made by Dec. 31, the IRS gives you until tax day to make tax-deductible contributions to an individual retirement account.

For 2017, if you are 49 or younger, the contribution limit is $5,500, with the deduction phasing out at higher incomes.

3) Remember your state taxes

In addition to filing your federal tax return with the IRS, your state tax return is due at the same time.

Tax laws vary from state to state, which means they could offer breaks not available on your federal return, Hammer said. Some states, like Florida, impose no state income tax.

Some breaks could be related to, say, vehicle or homeownership, while others could be tied to specific jobs.

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4) Don't wait until the last minute

This year's tax-filing deadline (April 17) might seem far away right now. That's a good thing: At this point, you have time to review all your forms for accuracy.

"If something is incorrect on your W-2 or 1099, or you didn't receive all your documents, it will be impossible to get it fixed in time if you wait until the end of tax season," Hammer said.

Additionally, if you want to open an individual retirement account and make a tax-deductible contribution for 2017, waiting too close to the filing deadline could result in your contribution landing in the account after the deadline.

"You'd be lucky to get an account set up in five or six days," Hammer said. "Then you have to have the contribution credited to your account in time."

If something is incorrect on your W-2 or 1099, or you didn't receive all your documents, it will be impossible to get it fixed in time if you wait until the end of tax season.
Greg Hammer
CEO and president of Hammer Financial Group

5) File by April 17

You might be able to file your tax return for free. If your 2017 adjusted gross income is $66,000 or less, you might qualify for the IRS's Free File program. Roughly 70 percent of the nation's taxpayers — about 100 million people — are eligible, according to the IRS. Additionally, many online tax-software providers offer free filing for simple returns.

If you do prepare your return online, the process will help figure out exactly which Form 1040 you need to file, as well as any other required forms. Professional tax preparers also can help with this process.

If you end up realizing that you can't get your tax return in by April 17, you can file for a six-month extension. However, this only delays the due date for the return — not for any amount due.

In other words, if you owe money to Uncle Sam, you're still expected to pay it by April 17. If you do not, you could accrue penalties and interest until the amount is paid. And if you file late without an extension, you could get slapped with additional penalties and interest.

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