Beginners Guide to Tax Season
Nothing puts an exclamation point on independent adulthood quite like filing your own taxes. There’s a certain mixture of pride and fear that tends to engulf the first-time filer; but with the guidance of tax software, even beginners can reach the summit of their first tax season.
A New Job and Your W4
If you’re a beginner at filing your own taxes, chances are high that you’ve started a new job, possibly your first in the “real world”. Congrats! But with adulthood and a full-time job comes the reality that a significant part of your pay won’t get to see the inside of your bank.
When you start a new job, your employer will have you fill out a W4, which is the Employee’s Withholding Allowance Certificate. This document basically wants to know your marital status and how many tax-withholding allowances you intend to claim.
Filling out your W4 correctly will go a long way in easing the pain of your first tax season.
A Large Refund Isn’t Always a Good Thing
Yes, a giant chunk of money is great. Who wouldn’t love the massive refund check, like the one’s you hear about on commercials this time of year? But if you receive large tax refunds year after year, you might want to rethink your money management.
Basically, a tax refund means that you paid the government too much money over the course of the last year. It’s like giving Uncle Sam an interest-free loan. So when you get your refund, the government is giving you back your money. If you make the right adjustments on your W4 in the previous year, you could keep more of your own money and put it to work for you throughout the year.
Filing the Easy 1040EZ Form
If you’re just starting out in life, it’s a good bet that you will qualify for the IRS 1040EZ Form. The major criteria for this form are that you haven’t made any money from investments, you make $100,00 or less per year, you don’t claim any dependents, and you didn’t earn more than $1,500 in interest.
Not only is this form simple to fill out, but if you qualify by meeting the required criteria, the 1040EZ is free at TurboTax.com and TurboTax will easily guide you through you entries. Sure, you could spend $70 by using a tax professional to file your taxes. But if you qualify for the 1040EZ form, your situation probably isn’t complicated enough to justify the money spent.
Standard Deduction vs. Itemized Deduction
As a beginner to filing taxes, it’s important to understand the difference between the standard tax deduction and itemizing your deductions. Any deduction will reduce your amount of taxable income, but choosing the right path will save you the most money.
The standard deduction is just what it sounds like – it’s standard. It’s a set amount of money and just about everyone will qualify for it. For the 2011 tax year, the standard deduction amount for a single person is $5,800, married filing jointly is $11,600, and married filing separately is $5,800 each. You’ll want to use the standard deduction if your itemized expenses do not exceed these amounts.
Itemized deductions are expenses made on certain goods and services (such as medical expenses, mortgage interest paid, giving to charity, and job-related costs) that the government has declared as tax deductible. If all of your qualified itemized expenses add up to an amount greater than the standard deduction amount, then you should use the itemized deduction because that will reduce your taxable income by a greater amount.
One of the easiest ways to find out which deduction you should take is by using your tax software. Most tax software, including TurboTax, will walk you through all of your potential itemized deductions, calculate the totals, and show you which deduction will benefit you the most.
Don’t Wait Until the Last Minute
The final piece of advice to give a tax newbie is to make certain that you file on time. Don’t worry about an extension, don’t wait until the last minute, and don’t let tax fear and intimidation force you to ignore the inevitable. Taxes are due on April 17th this year.
Forget about your history of procrastination, your late night college cram sessions the night before finals, and your constant inability to be on time. Today is a new day! It’s time to plan ahead, prepare in advance, gather all of your tax information as soon as it’s available, and knock this tax stuff out of the park.
Good luck and happy tax season.