You can’t fully understand many important things in life until you do them for the first time: riding a bike, getting your first job, and doing your taxes.
Filing your income tax return is one of those adult rites of passage that can seem shrouded in mystery until you sit down to file for the first time.
The good news is that filing taxes for the first time is usually pretty painless. Uncle Sam might even end up paying you!
The income tax process actually begins on your first day of work, when you fill out a W-4 form.
The form includes a worksheet where you can tally basic information, like whether you’re married or have any dependents, and figure out how may allowances to claim.
Based on this number, your employer will withhold money from each of your paychecks, which goes toward your income taxes.
You can ask for additional money to be withheld from each check if you’re anticipating a larger-than-normal tax bill you’ll need to cover.
Yes, income taxes are collected all year ’round, not just on April 15.
Filing a tax return is a way of “settling up” with Uncle Sam. If you didn’t withhold enough tax from your paychecks during the year, you might have to pay the balance – but if the opposite happens, you get a refund.
First things first; do you even need to file a tax return?
The IRS only requires tax returns from people making the minimum amount of money for their filing status.
Here are the minimum filing requirements for the 2014 tax year for people under 65 as of Dec. 31, 2014.
- Single people: $10,150
- Heads of household: $13,050
- Married couples filing jointly: $20,300
- Widowers and widowers with dependent children: $16,350
Married couples filing separately have a threshold of $3,950, regardless of age.
If someone else claims you as a dependent on his or her tax return, the filing requirements are lower:
- Single (under the age of 65): $6,200
- Single (over 65): $7,750
- Married (under 65): $6,200
- Married (over 65): $7,750
Most of the information you need to file your taxes will be included on a form called a W-2 that your employer will send you in January or February.
The form shows exactly how much you were paid during the tax year and how much was withheld as federal and state income tax (if your state has income tax).
What if you’re self-employed? Do you also pay income taxes year round?
For most self-employed people, the answer is yes.
Whether you are an independent contractor or a sole proprietor of a small business, you need to pay estimated taxes quarterly.
Instead of receiving a W-2, self-employed people receive Form 1099-MISC from any business clients who provide “nonemployee compensation.”
It depends on the complexity of your tax situation:
- 1040EZ is for single filers with no dependents and no mortgage who wish to claim the standard deduction.
- 1040A is for single or married people who own a home, have dependents and want to claim certain tax credits or deductions, but also do not want to itemize all their deductions.
- 1040 is for people who own their own businesses, have rental property income or want to itemize deductions.
Rather than navigate which 1040 form you need to file and tax law, let TaxACT Free Federal Edition guide you.