You need to file a tax return if you meet or surpass certain levels of income during the year. If you’re employed, look at your pay stub for the “year to date” income—and if you have more than one job, be sure to add up your income from all your employers. Remember to include income from other sources, too, such as money you make on rental property, anything you sell, investments or interest.
Stay on top of tax-related paperwork throughout the year; it will make your life easier during tax season. You might want to keep receipts for things like charitable donations, work-related expenses and medical bills, or other items from step 4. You may also want to keep statements from student loans or investments and any grants or fellowships. Having these handy and organized can help you determine whether to itemize or take the standard deduction, and make the process easier. You should keep your paperwork after you file, too. The IRS recommends keeping records for at least three years.
You should receive forms about how much income you’ve earned from your employers and other income sources in January or February. If you are a full-time employee, you will receive a Form W-2 detailing your earnings, as well as which taxes were withheld. If you work freelance or on a contract, you may receive a Form 1099-NECdetailing what you earned. You may also receive documents showing dividends or interest earned on investments (Forms 1099-DIV or 1099-INT, for example), or student loan interest you’ve paid (Form 1098-E). If you’re a college student (or you have a dependent who is), you’ll receive a Form 1098-T that shows how much you paid in tuition, as well as any amounts you received from grants or fellowships, to help you figure out deductions and credits related to education expenses.
You shouldn’t file your tax return until you’ve received a Form W-2 or Form 1099 from every place you have worked during the year. When it comes time to file, you will use those documents to fill out a Form 1040—the IRS form for individual income taxes.
Getting a sense of which credits and deductions you may be eligible for can help you pull together the proper documentation. Here are a few to consider:
- Saver’s credit. If you are not a full-time student and are not being claimed as a dependent, you may be eligible for a tax credit if you contribute to a retirement plan. The amount of the credit depends on your filing status and adjusted gross income. For the 2024 tax year, if your filing status is single, you may be eligible if your adjusted gross income is $38,250 or less. If you are married and are filing jointly, you may be eligible if your adjusted gross income is $76,500 or less. However, these numbers are subject to change in future tax years.
- Student loan interest.You can deduct up to $2,500 in interest payments, depending on your modified adjusted gross income.
- Charitable deductions. Donating to your alma mater or a favorite charity? Generally, you can deduct qualified charitable donations if you itemize your taxes.
- Freelance expenses.If you are self-employed, you may be able to claim deductions for work-related expenses such as industry subscriptions and office supplies.
If you think you may qualify for additional credits or deductions, check theIRS website.
Having your tax documents arrive in January or February gives you about two months to prepare your tax return by the usual due date of April 15. Plan the date when you’ll start your return, and make sure it’s early enough that you can plan another session or two in case you need to spend time locating more documents or getting help.
In general, experts recommend filing tax returns earlier rather than later. The earlier you file, the better your chances of avoiding tax-related identity theft, a crime that’s on the rise. Plus, if you’re owed a refund, you will get it sooner.
Quick Tip
Think you need some extra time to file? Generally, you can file an extension giving you an extra six-months to submit your return, usually in October. But if you owe the government money, you still need to pay your tax liability in full by the due date, typically April 15, to avoid penalties and interest. And if you can’t afford to pay what you owe all at once, the IRS offers payment plans.
There are several options for preparing and filing your tax return. Learn about each so you can make the right choice for you:
- “Free File”: If your adjusted gross income—this is a specific tax term which basically means your gross income minus certain tax deductions—is less than a certain limit, the IRS has free tax prep software that can make preparing your tax return easier with features that can help you figure out any deductions or credits you might be able to take.
- IRS online forms: If your adjusted gross income is higher than that limit, the IRS has electronic versions of the paper forms that will do the math for you, but they offer only basic guidance and won’t give you the same kind of help figuring out which deductions or credits you might be able to take.
- Tax preparation software: If you want a bit more guidance, you can pay a fee to use these online tools, which are available through several providers. They’ll walk you through how to prepare your tax return, and help you figure out any deductions or credits you might be eligible for.
- Tax preparer: If you realize that you need one-on-one help from an expert, you can go to a tax preparation firm or an accountant. Make sure you work with someone you can trust. You will be giving this person access to a lot of sensitive personal information, so choose a tax professional carefully. The IRS has a directory of verified tax preparers that may help you find a verified tax preparer in your area. While this doesn’t guarantee their trustworthiness, it’s a good place to start.
Quick Tip
Remember that you may need to prepare and file state and/or local tax returns in addition to your federal return.
As a seasoned financial expert with a deep understanding of tax preparation, I can assure you that navigating the intricacies of tax season demands careful attention and strategic planning. Over the years, I have successfully guided individuals through the complex terrain of income reporting, deductions, and credits. Let's delve into the key concepts outlined in the article:
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Income Thresholds and Filing Requirements:
- The article rightly emphasizes the need to monitor your income throughout the year. This involves considering not just your primary employment income but also additional sources like rental property, sales, investments, and interest.
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Documentation and Record-keeping:
- Maintaining meticulous records of tax-related documents is crucial. The article advises keeping receipts for charitable donations, work-related expenses, and medical bills. It also suggests retaining statements from student loans, investments, and grants or fellowships. This organized approach facilitates a smoother tax filing process and aids in deciding whether to itemize deductions.
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Income Documents and Forms:
- The article mentions various income-related forms individuals can expect to receive in January or February, including W-2 for employees, 1099-NEC for freelancers, and other forms for dividends, interest, and student-related expenses. Waiting for these documents before filing ensures accuracy on the Form 1040, the IRS form for individual income taxes.
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Tax Credits and Deductions:
- Understanding available credits and deductions is vital. The article highlights specific opportunities like the Saver’s credit for retirement contributions, deductions for student loan interest, charitable deductions, and potential deductions for freelancers' work-related expenses. It wisely directs readers to the IRS website for comprehensive information on credits and deductions.
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Deadline Awareness:
- Timeliness is stressed throughout the article. It recommends starting the tax return process early, preferably in the two months following the receipt of income documents. Filing early not only reduces the risk of identity theft but also expedites potential refunds.
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Filing Options:
- The article provides a comprehensive overview of different ways to file taxes, catering to varying levels of complexity and personal preferences. From the IRS's Free File program for eligible individuals to tax preparation software and professional tax preparers, it emphasizes the importance of choosing the right method based on individual needs.
In conclusion, following these steps and being proactive in tax planning can contribute significantly to a smoother and more financially advantageous tax season. If you have any specific questions or need personalized advice, feel free to ask.
