Mistakes First-Time Tax Filer Make - and How to Avoid Them
Tax filing is an annual rite of passage, one that many people have been struggling through for decades, but for first-time tax filers, the stakes can be even higher. Without the aid of decades of experience, many first-time filers are left to their own devices, and rookie mistakes are all too common.
When it comes to dealing with the IRS, even a small mistake could be costly. Forgetting to report income, using the wrong form or failing to provide banking information for direct deposited refunds could all slow the processing of those first returns, but there are steps young people can take to ensure the integrity of their first tax returns. Here are some simple mistakes first-time tax filers make and how to avoid them.
Not Realizing You Are Claimed on Someone Else’s Return
If you worked a job but still received support from your parents for housing, food and other essentials, they may have claimed you on their own return. If you do not know this, your first return could be delayed, or even rejected by the IRS.
Before you file your initial tax return, you should check with your parents, or anyone else you live with, to see if they are planning to claim you on their tax return. Depending on the circumstances and relative incomes, it may be more advantageous for your parents to claim you, but it is important to know for sure before you file.
Failing to Report Income from Gig Work
A lot of young people are member of the gig economy, shuttling commuters to the airport, delivering food to their hungry neighbors and doing all manner of work from home. What many of those gig workers do not realize is that Uncle Sam will want a portion of their earnings, and failing to report it could bring down the wrath of the IRS.
If you do work as a gig worker or freelancer, it is important to keep careful records, including information on expenses you incurred along the way. If you are working as a rideshare driver or delivering food, for instance, you may be able to write off part of your gasoline purchases and other automotive expenses. If you do your gig work from home, you may be able to claim the home office deduction, as well as the cost of pens, paper, printing and other supplies and services.
Not Claiming All Your Deductions
The United States tax code is enormously complicated, but that can be a good thing. Whether you earned wages from a traditional employer, participated in the gig economy or did a little bit of both, you may have access to some lucrative deductions, and not claiming them would be a big mistake.
One of the easiest ways to make sure you are getting all the deductions you are entitled to is filing your taxes online. Using an online tax filing program or software will allow you to walk through the deductions step by step, taking advantage of all the ones that apply to you and your situation.
Failing to Contribute to a Retirement Program
Many first-time tax filers are shocked when they get to the last part of the process, especially if they had been expecting a big refund. Instead, those first-timers may find that they actually owe money, but they could have saved themselves some money – and saved for retirement.
Participating in a retirement plan, either at work or on their own, is one of the smartest things young people and first time tax filers can do to lower their tax bills, so they can claim that big refund. Even more importantly, opening a retirement plan now and contributing to it year after year can become a habit – and a lucrative one at that.
Using a More Complicated Form Than You Need To
As a first-time tax filer, you may be able to use the shortest and simplest tax form there is, the aptly named 1040-EZ. For first time filers with wage income and a limited amount of interest, this form is the natural choice, yet many eligible taxpayers end up filling out longer, more difficult and more complicated forms instead.
Using a longer and more complex form than you need to can create several problems, starting with wasting your valuable time. If you can file your taxes in minute, why spend hours wading through piles of paperwork? Even worse, the longer the form the greater the chances of a mistake, so do yourself a favor and use the easiest tax form you can.
Few people look forward to dealing with the IRS, but this annual rite of passage is a necessity for just about everyone. If you are filing your taxes for the first time this year, avoiding the blunders listed above can help you maximize your refund while minimizing the stress you feel.