Oh, the joys of being an adult and doing your own taxes. I always did my own taxes after 18 but it is amazing how many people don’t. Don’t get me wrong, I get why parents want to still claim their kids and get those tax breaks (deductions) but it is important that as an adult you know how to do your own taxes, do them and do them on time.
People bitch about tax season all the time but the truth is that it is the price we pay living in a society and using basic services. Libraries, schools, roads, the fire department. All of these are stuff you need and want so don’t get your pants in a twist about paying your taxes.
So what gets taxed? There are two types of income subject to taxation: earned income and unearned income. Earned income includes:
- Unemployment benefits
- Sick pay
- Some noncash fringe benefits
Taxable unearned income includes:
- Profit from the sale of assets
- Business and farm income
- Gambling winnings
Get everything in one place: The first step is to get all of your paperwork together and in one place. Forms can trickle in slowly so a designated place that you put all of your paperwork and tax documents (like the files we talked about HERE) can make things a lot simpler and prevent you from finishing late. Like everything in life, filing taxes is a lot easier when you’re organized.
- W-2: A W-2 is a form your part-time or full-time employer sends you. It shows how much money you made in the past year and how much you paid toward taxes, Social Security, and Medicare.
- 1099: If you earned over $600 by freelancing or working a side gig — such as driving for Uber — your client will send you a 1099 form. The form shows how much you made last year, but unlike W-2s, no money was taken out for taxes.
- Other income records: If you worked a side hustle but made less than $600 from a client, you won’t get a 1099 — but you still have to report that income. Keeping a spreadsheet of your earnings or having a separate business bank account can help simplify tax time.
- 1098: If you made interest payments on your student loans, your lender will send you a 1098 stating how much interest you paid last year.
- 1095-A: If you got health insurance through Healthcare.gov, the government will send you a 1095-A form. This states that you had qualifying coverage for the year.
- 1099-INT: If you earned interest from any savings accounts or dividends over the year, your bank will send you a form. This will show how much interest you earned.
- Bank account routing number: To get your tax refund as quickly as possible, it’s a good idea to sign up for direct deposit when you file your return. To do so, you’ll need your bank account number and your routing number.
- Expenses and receipts: If you landed a new job, relocated to advance your career, or attending business conferences, used your phone for work you can deduct associated costs. Make sure you keep receipts handy when you do your taxes.
How Do I File: Filing your taxes has never been easier actually. There are tons of software that you can use including Credit Karma, TurboTax, Tax Act and if you make under $64,000 a year, you can file them with the IRS’s free filing software.
If your taxes are more complicate though I would suggest going and seeing an actual tax professional. Otherwise, you might miss deductions that could get you some nice money back. If you make 54,000 a year you can look up your nearest Volunteer Income Tax Assistance (VITA) location. If you own a business, a rental property or have investments, your taxes might be complex enough to warrant hiring a tax professional. But if you have a side hustle that doesn’t have business partnerships or many investments, software might be enough for you.
There is always the option of going old school and going paper but it allows for far more mistakes. Not to mention that it takes longer for it to mail in and process.
Know Your Deductions and Credits: Kids aren’t the only thing that you can get deductions for. Things like education, business expenses and charity are also rewarded and will reduce the amount of taxes that you owe. These are ways that the government incentivizes people to do things like buy houses, have kids, ect so please take advantage of them.
- American Opportunity Tax Credit (AOTC): If you paid for tuition or other related education expenses, the AOTC could be worth up to $2,500 per year.
- Charitable Donation Deduction: If you donated money or items to a nonprofit organization, you might be able to deduct the value on your taxes.
- Earned Income Tax Credit (EITC): The EITC is a valuable credit, but 20 percent of eligible people miss out because they don’t claim it on their taxes. The average EITC recipient gets an average of $2,482 by claiming the credit. You could be eligible if you’re a low-income earner.
- Home Office Deduction: If you work from home or run a business from where you live, you might be able to deduct up to $1,500 on your taxes.
- Lifetime Learning Credit: With the Lifetime Learning Credit, you can claim up to $2,000 in qualifying education expenses.
- Student Loan Interest Deduction: If you made payments on your student loans, you can deduct up to $2,500 that you paid toward interest on your taxes.
- Tuition Fee Deduction: With the tuition fee deduction, you can deduct up to $4,000 in college tuition and other fees.
Refund and Payments: After all is said and done, we are holding our breath to see if we owe money or are getting something back from the government. Okay, we should know but I still hold my breath. If we are getting money back you can use the IRS “where is my refund?” function to track your refund. If you owe the IRS money though…well that sucks. But there are options. The IRS has a payment tool on their website and if it is more then you can afford up front, there are payment plans available. Contact the IRS to set them up.
But I’m Not Around: If you are out of town or the country during tax season, are experiencing a hardship in the family or have some issue that prevents you from filing by April 15th you can file for an extension. However, if you own that IRS money, it still required you pay for it by the set date or you will have penalties and late fees applied. Honestly, it’s just best to pay and file on time.
Taxes can be confusing and hard to understand. If you have any sort of confusion its better to consult a tax attorney or someone who knows what they are doing. Most of all if its your first time or you’ve gone through a big life change like a move, marriage, divorce, started a business, bought a house, ect.
Take your time. But my takeaways are this.
- file on time
- read into deductions
- keep yourself organized