Did you just get your first full-time job this year? Or maybe you just graduated college and have your first Adult Job now.
First, congratulations! Second, it’s never too soon to start planning for taxes. Yep. Welcome to adulthood.
If you haven’t worked full-time before, or only have worked part-time, minimum wage-type jobs, you probably haven't had to worry about paying taxes.
If you made less than $13,850 last year, you may not have filed at all.
But once you have income, you’re going to pay taxes on it. In this article, we’re going to walk through some of the basics of tax planning and filing. Don’t worry; you got this.
What are income tax payments?
Tax payments are amounts of money you pay to the federal government as a citizen of your country, in this case the United States.
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The IRS, or Internal Revenue Service, administers the country’s taxation. Most states in the US also have a state income tax in addition to the federal income tax.
If you work for an employer, most of your tax payments are deducted from your paycheck before you receive it, and you never see that money.
However, if you are self-employed (including side hustle income), you have the responsibility to set aside money from your earnings to meet your tax liability every year.
How to file taxes on time
The standard deadline for filing your income tax return in the United States is April 15 of the year after the tax year. So, for example, you would file the tax return for your 2023 earnings on or before April 15, 2024.
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If you need more time to prepare your taxes, you can file an extension, which gives you until October 15 to file your return.
However, this does not mean that you get an extension to pay. If you believe that you will owe money on your taxes, you must pay an estimated amount as part of the filing extension.
If you do not file your taxes on time, you will owe a Failure to File penalty of 5% per month of the amount of tax due, up to 25% of the amount of tax you owe.
What paperwork do I need to file my taxes?
The basic paperwork you will need is your W-2 form from your employer and a 1099 form from anyone for whom you did contract work or earned more than $600 in other income.
You may also need documentation for any extra deductions or tax credits you may be claiming. If you have a spouse or children that you are claiming as dependents on your tax return, you will need social security numbers for each person.
All of the information from your return gets entered into IRS Form 1040 – Individual Taxation.
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If you are self-employed, there are more items you will need. If you have self-employment or contract income, you will also need records of any business expenses you have that are deductible from that income.
For instance, if you have a monetized Instagram or Tiktok, any expenses you have, like video editing software, are deductible from your earnings. Keeping good business records is essential – but that’s another article for another day.
Other common paperwork you might need for taxes is:
- A record of health insurance coverage for the year: Form 1095
- a record of student loan interest: Form 1098-E
- mortgage interest: Form 1098 property taxes paid. If you are e-filing your taxes, you will also need your drivers license or another form of ID for the e-signature at the end of your return.
IRS Form 1040 can look intimidating, but the truth is that you will most likely not be actually filling out information on this form.
Tax filing software has made the process much simpler – the software will guide you through the return.
All you have to do is answer the questions and fill in all the blanks correctly.
The official IRS forms and schedules are generated at the end, so you don’t have to deal with the rabbit hole of which form to fill out next.
Available channels to file taxes
There are many channels to file your taxes, some of them free. There are, of course, multiple tax filing companies such as HR Block or TurboTax.
You can also find an independent tax preparer in your area – bookkeeping companies and independent CPA’s often offer tax preparation services. If you qualify as low-income, your local library is usually a great resource for finding tax preparation help.
Depending on your income level and the complexity of your return, you may be able to use the IRS’s FreeFile resources.
These include access to tax preparation softwares that partner with the IRS to provide free federal tax returns for Americans with an adjusted gross income (AGI) less than $79,000.
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Be aware that while these programs offer free federal returns, you may still have to pay for other services such as state tax returns.
How to pay tax due or collect a refund
Ok, so now you know how to file a return. Once you have completed the entire return, you will see on your tax software, or on the last line of Form 1040, whether you owe money or are due a refund. If you owe money, you have different options for how to pay.
- You can pay it through EFT from your bank account through your tax filing software.
- You can pay directly to the IRS from a checking or savings account with Direct Pay.
Now to the good part – receiving a tax refund. You can either choose to set up direct deposit with your tax software and have the money deposited to your account, or you can receive a paper check. The paper checks are often slow to arrive, so if you want your money back ASAP (who doesn’t?), direct deposit is the way to go.
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What if your income is so low you don’t think you need to file a return at all? It can still be worth it to file. You may qualify for a refundable tax credit such as the Earned Income Tax Credit or (if you have children) the Child Tax Credit.
Tax returns also provide valuable proof of income for landlords, lenders, or if you are applying for benefits or public assistance.
These low-income returns are usually quick and painless to complete, so even if you don’t owe any tax or get a refund back, it’s worth it for the other benefits you could get from completing it.
What penalties exist and how to avoid them
Messed up on your return? The IRS will be sure to let you know about it. You will receive a letter in the mail from the IRS informing you of any mistakes you made or penalties due.
You could receive a penalty from the IRS for:
- Failure to file
- Failure to pay on time (or at all)
- Accuracy penalties if you have inaccuracies on your return or claim deductions you’re not eligible for
- Erroneous claim for a refund penalty applies if you claim a unusually large return that you are not eligible for, and the IRS cannot reasonably assume that it was a mistake.
No one wants the IRS all up in their business. Save yourself the grief and file a timely, accurate return.
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Tips to save on taxes
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You may not like it, but tax season isn’t the only time to think about taxes.
Especially if you have self-employment income or a high-paying job, it is worth it to think about how to reduce your tax liability with your financial choices throughout the year.
This isn’t income tax evasion – this is being smart about how to keep the most of your money.
- Save for retirement. This one is the biggie. You can set aside up to $22,500 in a 401(k) and an additional $6,500 in an IRA (individual retirement account). All that money goes right to you and is not included in your taxable income. If money is tight for you, you may laugh at being able to save for retirement at all, but if you can afford to save even $100 out of your paycheck for retirement, that’s an extra $12-25 in your pocket at tax time.
- Use an HSA (health savings account) if your health insurance includes it. All money you set aside in an HSA goes in tax-free, and if you use it for healthcare expenses, it’s tax-free when you take it out, too. If you’re lucky enough to have good enough insurace coverage that you don’t have to use HSA money for out-of-pocket health expenses, it’s still a good idea to keep an HSA. You can invest money inside of an HSA – and if you keep it in there until age 65, you can withdraw it for non-heathcare-related purchases as well.
- Ask your employer to edit your W-4. You may not even remember filling out the W-4 when you got hired, but if you are seeing a lot of money withheld from your paycheck for taxes every month, you may want to ask your employer to change it so you have a smaller withholding. This can mean more money in your wallet every month for you to put to work for you, instead of it sitting to go to the IRS. Be aware: if you reduce your withholding too low, it could mean that you will owe taxes instead of getting a refund come April, so plan accordingly.
That’s the basics of planning and filing your tax return. It’s a lot of information to take in, but so is everything when you learn something new.
Give it a year or two, and you’ll be rocking your money every tax season.
