March 20, 2014

Whether the first-time tax filer is a teen reporting earnings from yard work or babysitting or an adult filing an income tax return to claim the Earned Income Tax Credit (EITC), the process can seem intimidating. Fortunately, many first-time tax filers have very simple tax circumstances, which make the process of filing tax returns much less complicated than filing a return for an executive earning six or seven figures. Even better, nearly all first-time tax filers should be able to file their returns for free.

Key Terms for First-Time Tax Filers

If you have never filed a tax return before, terms like W-2 form, standard deduction, itemized deductions, tax credits, tax deductions and exemptions can seem scary and strange. However, the following list spells out essential income tax terms in plain English

  • Filing StatusThere are five filing statuses: single, married filing jointly, married filing separately, head of household (adult filer claiming one or more dependents), and qualifying widow(er) claiming one or more dependents. Your exemptions and certain tax credits depend on your filing status.
  • W-2 Form: If you have a job, your employer will give or mail you a W-2 form that lists your wages and any taxes that were deducted during the previous year. You must file a copy of the W-2 Form with your income tax returns.
  • Standard Deduction: A set amount that each taxpayer is allowed to deduct from his or her reported income regardless of personal circumstances
  • Itemized Deductions: Specific deductions that certain taxpayers are allowed to deduct from their reported income, such as catastrophic medical expenses. You cannot claim the standard deduction if you claim itemized deductions.
  • Tax Credits: Cash payments made to taxpayers (like the EITC). You may be eligible to receive tax credits even if you owe no income tax.
  • Tax Deductions: Amounts that can be subtracted from your reported income. Deductions can reduce or eliminate the tax that you owe (so that you owe zero taxes), but you cannot receive tax deductions as cash.
  • Exemptions: Each nondependent taxpayer is entitled to one exemption. The amount is set by the IRS each year. Parents can claim one exemption for each dependent child in addition to their own. Dependents cannot claim exemptions.
  • Form 1040: The income tax return that you file. Depending on your circumstances, you may file Form 1040-EZ, the Form 1040-A (the “short form”) or Form 1040 (the “long form”) Most first-time tax filers will be eligible to file either Form 1040-EZ or 1040-A, both of which are simpler than Form 1040.
  • Schedules: Supplemental forms filed with your federal income tax returns. Common schedules include Schedule A (for itemized deductions) or Schedule C (for reporting self employment income and deductions)
  • Form 1099: A form to report non-wage earnings such as interest which have been reported to the IRS. You must report earnings from Form 1099, but you do not include a copy of Form 1099 with your return.
  • Line XX: Indicates the place on your income tax return or schedules where information (such as total wages from your W2 forms) should be entered. The line number will also be indicated on your income tax return or schedules.

Do I Need to File a Federal Income Tax Return?

This question can be perplexing, especially if you don’t think you earned enough to need to file. But the IRS has established clear (and very strict) rules concerning who must file income tax returns. In fact, many people are surprised to learn that they (or even their children) are obligated to file income tax returns.

The IRS has established especially stringent rules concerning dependent children for requiring income tax returns. Generally, if a child is unmarried, under the age of 19 (or under age 24 and a full-time student) or disabled (at any age) AND receives more than 50 percent of his or her financial support from a parent or other adult guardian, he or she can be claimed as a dependent for federal income tax purposes. If you have doubts about whether you or your child must file a tax return, the guidelines below spell out whether the IRS expects to receive a return from your child concerning his or her earnings for the previous year. Rules for your state may vary.

  • A child with unearned income (e.g. from interest) over $1,000
  • A child with income from wages (like a part time job) over $6,550
  • A child with gross income over either of the two previous figures plus $350
  • A child with net self employment earnings (after deductions) of $400 or more

In most cases, the child must file a separate income tax return regardless of his or her age. However, if the child is a dependent with only unearned income to report, parents may include the child’s income on their tax returns. Obtain advice from a tax professional (accountant or attorney) before following this strategy.

The IRS also has established guidelines for whether adults must file income tax returns. Generally, if ALL of the circumstances listed below pertain to you, you do not have to file an income tax return. Though, if any of the conditions listed below do NOT apply to you, chances are you must (or should) file a federal income tax return. You may or may not also be required to file a state income tax return.

  • Single
  • Under age 65
  • No dependents
  • Cannot be claimed as a dependent
  • No taxes withheld from earnings
  • Do not qualify for the EITC or other positive income tax credit
  • Gross income of less than $10,000
  • Self employment income of less than $400

Recovering Deductions or Claiming the Earned Income Tax Credit

Even if you (or your child) do not actually owe federal income taxes, it may be desirable to file a federal income tax return anyways. Filing an income tax return is the only way to recover income taxes that were deducted from your paycheck that you do not actually owe. Further, the EITC (which can add up to hundreds or thousands of dollars) can only be claimed by filing a federal income tax return.

How to File Your First Tax Return

Many first time filers ring up their parents to help them file the first few times. But if you’re on your own or don’t want to bug them, the process is still pretty painless.

  1. Gather your paperwork, including W2 Forms, Form 1099s, receipts and bank statements and put them in a big envelope or folder. You’ll want everything in one place for this tax season, and to have as a reference next year.
  2. Download and print out copies of Form 1040, 1040-A, 1040-EZ, Schedule A and Schedule C along with instructions for each of the forms from the IRS website. Here’s a page to help you determine which form you need to file.
  3. Then, go through the tax forms that you need step by step, making notes where you have questions. Take your completed or annotated paper forms and notes to an accountant, a tax attorney or another trained professional and have him or her explain any sections that have caused you confusion. If you don’t have any questions and anticipate an easy filing, you may still want to have an experienced filer look over your forms just in case.
  4. Now it’s time to actually file your tax return. In most cases, you’ll be able to file online using a free tax return program like TurboTax or Freefile. You may also be able to file from your phone, with one of these mobile tax apps.

When Can I Start Filing My Taxes?

Filing your actual return electronically gives you a chance to go through the entire tax filing process step by step, with explanations provided for each step. Filing electronically also reduces the risk of making a mistake or having your return get lost in the mail. As a bonus, you will also receive any refunds to which you are entitled much faster than you would have by filing a paper return.

You’re Done!

Chances are, actually filing your income tax return will be much less intimidating than you imagined it would be. Once you have that first income tax return under your belt, filing next year should be less scary. And if you are entitled to a refund, that check or direct deposit in your bank account will serve as a reward for getting the job done.