Preparing your first tax return can feel overwhelming, but it can be empowering and rewarding. What’s more, filing your taxes isn’t hard. It just takes patience to make sure you’ve followed all the instructions.
Just Dig in and Do It
The biggest tip I can offer is finding out which tax form is right for you, and begin there.
The second biggest tip I can offer is to get smart about your W-2 form, and the other tax forms that your going to use. Read what’s in all those boxes, and the labels, and read the back of the documents as well. The more you know, the more savvy you will be as a taxpayer. Also, tax documents are the starting point of your tax return, whether you file on paper or use tax software to file your return electronically.
The Big Picture
There are some very basic principles of the US tax system. In a nutshell, I would say that the tax law boils down to this: you owe the government a portion of your income. This tax is usually withheld from your income throughout the year. No one knows if you’ve overpaid or underpaid your tax until you file a tax return. If you’ve overpaid your tax, you get a refund. If you’ve underpaid your tax, you have to pay your balance by April 15th.
That’s it, the rest are just details.
It’s the details, however, that consume most of our time in the tax world.
You will hear lots of people talk about creatures with strange names, such as “deductions,” “credits,” and “exemptions.” Be not afraid. Despite differences in their names, these things can reduce the amount of tax that people pay.
In fact, there’s basically two ways to reduce your income tax. You can reduce your income. Or you can take advantage of these various tax preferences.
Nearly everyone is entitled to a minimum level of tax preferences. These are called the “standard deduction” and the “personal exemption.” The amount of income you will be taxed on will be reduced by these tax preferences. See, you’re already taking advantage of the tax laws.
For young people, the most important tax preferences are the tax deduction for student loan interest, tax credits for college education, and tax credits to help you save for retirement. (Someday you will retire, and it will be easier if you start now.)
Practical Tips for Preparing Your First Return
Finally, here’s some practical tips for making the most of your first tax return.
Second, prepare your tax return using free or low-cost tax software. This will give you some experience using a tax preparation program, and you’ll be able to see if your tax calculations on paper match up with the calculations in the software.
Third, visit a tax preparer, and take a copy of your tax return with you. Yes, it’s our busy season. You should make an appointment in advance. And let the office know that you’d like them to review your tax return. Many tax offices will review your tax return for free, or for a nominal charge. If the tax office is particularly busy, ask for an appointment during the slow time of day, or perhaps after April 15th. Ask the tax preparer if you filled out your tax return correctly, or any suggestions they have. They should be able to tell you pretty quickly if you’re in the right ballpark, or if you made a mistake on your return. Reviewing your tax return should take about 15 to 30 minutes, depending on how long you chat.