5 Tips for Filing Your Taxes for the First Time
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Are you filing your taxes for the first time?
Are you feeling a bit overwhelmed about the whole process?
Filing a tax return for the first time can be intimidating.
Here are 5 tips to help you through the process.
1. Determine if you need to file
Three things must be considered when determining whether or not you have to file a federal income tax return; filing status, gross income, and age. Generally, once you reach a certain income level, the law requires you to file.
See the below image for most people’s federal income tax return situation.
Even if you are not required to file, you should file to get a refund of any federal income tax withheld or to take advantage of the tax credits you may be eligible for, such as:
- Earned income credit
- Additional child tax credit
- American opportunity credit
- Credit for federal tax on fuels
- Refundable credit for prior year minimum tax
- Health coverage tax credit
2. Get organized
Save time by getting organized before preparing your tax return. Use a checklist to help determine what info you’ll need.
In addition, it makes it easier when using the TaxACT software as it provides a step-by-step guidance through the Federal and State Q&A interview screens. Having this information readily available makes it a much smoother process.
3. Understand the difference between tax deductions and credits
A deduction will reduce your taxable income. From this taxable income amount, you will figure your tax liability.
A credit will then reduce your tax liability. There are nonrefundable and refundable credits.
A nonrefundable credit can reduce your tax liability to zero, however it cannot result in a refund. If your tax liability is zero, you would not receive this type of credit at all, even though you are otherwise eligible.
A refundable credit can increase your refund or decrease the amount you owe. You may qualify for a refundable credit even if you do not have federal income tax withheld.
4. File your return on time
The IRS publishes its filing deadlines each tax year. For the 2012 tax year, the individual income tax return due date is April 15, 2013.
If you are unable to file by this date, you can apply for a 6-month extension. You can do so by filing Form 4868 or paying your estimated tax due, which can be completed in the TaxAct program.
5. Know the record keeping requirements
Basic records are documents that everybody should keep. These are the records that prove your income and expenses. If you own a home or investments, your basic records should contain documents related to those items. For example:
- Forms – w2, 1098, 1099, K-1
- Bank statements
- Brokerage statements
- Sales slips
- Proof of payments
- Written communications for qualified charities
- Closing statements
- Purchase and sales invoices
- Insurance records
- Receipts for improvement costs
- Brokerage statements
- Mutual funds statements
- Forms: 1099, 2439
- Receipts for collectibles
Please note, there may be more detailed record keeping requirements depending on the specific items included on your tax return, such as the itemized deduction for charitable contributions.