Filing Taxes for the First-Timer

Before giving yourself a headache over Internal Revenue Service rules, one expert says, determine if you have to report your income at all.

Atlanta-based Cora Parks, author of the blog TaxToday, said first-time filers need to see if they received enough income for the tax year to trigger the filing requirement.

“This amount is determined by the person’s filing status, age and dependency status,” Parks said.

For example, in 2022, if you are under age 65 and filing single or married filing separately, you typically must file an income tax return if your gross income was $12,950.

Chart A of "1040 Instructions 2022" details 10 separate filing situations and the corresponding income threshold for filing.

On the other hand, a self-employed individual who earned the same amount won’t get off so easily, Parks says. Such a person is responsible for the entire amount of taxes due the government—rather than only half, as is the case with an individual from whose pay income taxes have been withheld and forwarded to the government by the employer.

Filing doesn't have to be complicated for newcomers. Because most first-timers are dependent-free and not bogged down with various claims, they're eligible to a simple version of the Form 1040. If your taxes become more complicated, various schedules and forms are included to provide the IRS with information necessary to process your tax return.

Regardless of whether or not you are required to file, you may want to do so, because if your employer has been withholding taxes, you may be owed a tax refund.

The power of deductions

The need to account for deductible expenses is one requirement for which being a pack rat pays off. It can be a problem for those who throw away receipts and find it cumbersome to jot down things like mileage and expense transactions.

Being able to deduct expenses for your business or household can be one of the bright sides of filing taxes. Those deductions can lower your taxes and perhaps lead to a refund.

But you must prove what you spent, says Karen M. Reed, director of communications for Citrus Heights, California-based TaxResources Inc.

“The time to get the documentation in order is when you are preparing your tax return—not one to three years later when you are audited and can’t remember what you did a long time ago,” Reed said. “Many taxpayers cheat themselves out of deductions by not keeping good records.”

If deductions are later questioned by the IRS, Reed says, deductions for which you have no supporting documentation will be disallowed.

Most deductions require an invoice and proof of payment, such as a canceled check or credit card statement.

Reed says a set of conditions must be met before any deduction is approved by the IRS and encourages taxpayers to take the time to understand the difference between what is considered personal versus business.

“Many first-time filers believe they can deduct all of their lunches with co-workers as ‘business meals,’” said Reed. “Another example is business gifts. Most people do not realize that the deduction is limited to $25 per recipient per tax year.”

The taxpayer also needs to know that not every deduction affects the amount of income tax due—or the amount of a refund.

“Many first-time filers are confused when the medical expenses they enter into a tax program do not change the bottom line of their returns,” Reed said. “But the reason is that there are limitations on these expenses, which are only deductible when they exceed a certain percentage of adjusted gross income.”

Status, Form W-2 and Form 1099

Charles Davidson, owner of Redding, California-based Accelerated Education Systems, says that most first-time filers he’s run across have more than one Form W-2, the form prepared by an employer that shows the employee's gross and net wages along with federal, state, Social Security and Medicare taxes withheld.

Davidson says it’s important that first-timers know they may not file until they have the W-2 from each employer.

“Some first-timers are surprised to learn that they have been contributing to a 401(k) or retirement plan through their employers,” he points out. “Contributions to a retirement plan may result in the taxpayer being able to claim the Retirement Savings Contribution Credit.”

You must also consider filing status—such as single, married filing jointly or head of household. Identifying the proper filing status can be tricky in today’s array of nontraditional living arrangements, Davidson noted, adding that some people misunderstand what claiming "Head of Household" means.

“Many will try to claim head of household even when there is not a qualifying dependent living in the home," Davidson said. “It means a larger standard deduction, so it’s advantageous to file head of household, but if you can’t legitimately file that way, it could mean an audit.” The focus on the filing status in the instructions for Form 1040 explains the conditions that must be met in order for the filer to claim "Head of Household" status.

Filing statuses and dependent claims can be confusing even for tax professionals, Davidson notes, and he encourages first-timer filers to research the stipulations carefully.

And you know all that miscellaneous income you earned last year on the side? Yeah, you have to claim that, too. You might or might not receive a Form 1099 from the company for which you performed work as a self-employed person—an independent contractor.

“Companies are not required to issue a 1099 if the income is less than $600,” Davidson said. “(But) taxpayers must report all income for all sources worldwide. This includes from online activities like eBay or affiliate programs.”

Even if you did earn a little money on the side but didn’t receive a Form 1099, that does not exempt you from reporting that income to the IRS.

“I call these taxpayers ‘accidental business owners’ because they don’t realize that miscellaneous income essentially sets them up in a business,” Davidson says. “They can legally deduct any expenses that enabled them to earn that money. It also means they have to file a Schedule C, which can be much more intimidating.”

Get your mind right

The more you actually learn about the tax system, the less stress you'll feel filing your first forms.

“If you’re a first-time filer, your approach should be calm, focused and curious,” says Karen M. Reed, director of communications for Citrus Heights, California-based TaxResources Inc. “You should take an interest in what you’re doing, as it is a huge component of your financial life.”

Reed advises against waiting until the last minute to think about your taxes, as well as rushing through the process while you’re preparing your return.

“Dig a little deeper and take the time needed to make sure you understand every entry on your tax return,” Reed said. “And be sure to proofread it: A mistake in just one digit can lead to disastrous results.”

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