It’s officially tax season and for recent college-graduates, this may be your first time preparing and filing taxes. Whether you’re filling out a simple tax return or have a more complex situation, our tips for first-time filers will help you conquer task with ease.
Do you need to file taxes?
Even if you were in school the majority (or all) of 2017, if you earned any income, even less than the IRS threshold, you should file your taxes. If you had federal taxes taken out, you may be eligible for a refund. Scholarship or stipends for a fellowship will be tax-free if you were a degree candidate; however, if you use these funds for anything other than tuition, fees, books, supplies, or equipment, you will need to pay taxes on them.
What You Need to Prepare
In addition to having your Social Security number and personal information, to prepare your taxes, you need your W-2 form and 1098-E form for those with student loans. Your W-2 is a document provided by your employer showing your income from the previous year. Employers are required to provide employees with W-2s by January 31, 2018. The 1098-E form includes your student loan interest statement from the company that services your student loans.
Know which tax breaks apply to you.
One of the biggest mistakes recent graduates make is not taking advantage of little-known tax breaks that could save you money. By preparing your taxes with TurboTax and providing information including any life changes, the software can help find you any potential deductions or credits.
What’s a Tax Deduction?
A tax deduction (or a write-off) is an amount of money spent on certain circumstances subtracted from your taxable income. If you made $30,000 last year and paid $300 in interest on your student loans, the government doesn’t tax student loan interest, so when you report it on your tax return, the IRS subtracts $300 from the $30,000 you made.
What’s a Tax Credit?
A tax credit reduces the amount of income tax you owe and is generally designed to reward certain actions that are considered beneficial to the economy. There are a variety of tax credits available and they typically save you more in taxes than deductions.
Tax credits and deductions can help you save more. Review the Tax Benefits for Education: Information Center on the IRS website for ones that may apply to you.
Understand the Language
Whichever category you fall into, take note of these quick tax terms to make sure you’re as prepared as possible to prepare your return.
- Tax return: This is the document that reports to the IRS how much money you made and other information about your finances in the previous year. You’ll also file one for each state you worked in last year, if that state has an income tax of its own. These items are due on Tax Day, letting the government know if it took too much or too little income tax out of your paycheck.
- Tax refund: The good part. After you send in your return, you may get a tax refund, which is a payment from the government giving you back the extra money you paid throughout the year in income tax.
- AGI – Adjusted Gross Income: This is the income you receive over the year including: wages, interest, dividends.
- Voluntary Compliance: This is the philosophy upon our tax system is based: U.S. taxpayers voluntarily comply with the tax laws and report their income and tax items honestly.
Where to File
If you don’t expect to claim many tax deductions, you can use an online tool to fill out your tax return for free. If you made less than $66,000, you can prepare and file your taxes for free on the IRS website. For more step-by-step assistance with your taxes, TurboTax offers a free version of its software for federal and state returns.
Preparing and filing your taxes for the first time can seem challenging. Take advantage of the helpful tools including TurboTax where you can file for free and get step-by-step instructions along the way helping you get the return you deserve. Need extra assistance? Consult with a tax professional to walk through this process with you.