As Benjamin Franklin said, nothing in this world is certain except death and taxes. While the former is hopefully many, many years away for you yet, you can be sure that when it comes to taxes, Uncle Sam will come knocking each and every year to make sure you’ve paid your fair share.
Tax time can be confusing though, even for people who have been paying taxes for decades. Tax laws change nearly every year, and the methods for filing evolve with new technologies and rules. If you’re just starting out in your career or are a student filing taxes on your own for the first time, it can be especially intimidating.
If you live in the U.S., your federal income tax return will be due sometime in mid-April, and your state income tax will be due around the same time (depending on your state). Read on for some high-level information and resources to help you prepare for tax season.
What is a tax return?
Your tax return is a calculation of what you owe the Internal Revenue Service (IRS) or what they owe you. A tax return reports income and earnings to the IRS, and filing one allows you to claim various deductions to reduce your taxable income to the lowest amount possible.
When you have a job, your employer withholds some money from your paycheck for federal income taxes, social security taxes, and state and local income taxes (in most states). As painful as it can be to hand over a chunk of your hard-earned money, remember that your taxes are helping to pay for important things in your community, like roads, law enforcement, and schools.
When you start a new job, your employer will ask you to provide information on Form W-4, the Employee’s Withholding Certificate. This helps them determine how much money to withhold from your wages.
By January 31st, your current employer and any former employers from the past year will give you a Form W-2 — the Wage and Tax Statement — showing how much you earned in wages, tips, and other compensation. It will also show the state and federal taxes, social security, Medicare wages, and any tips withheld. You will need this form when you file your tax return.
If you’re self-employed as a business owner or freelance worker, you’re required to make estimated quarterly tax payments throughout the year as you bring in earnings, since you don’t have an employer to withhold those for you.
Who has to file a tax return?
Whether or not you need to file a tax return depends on your gross income and whether your parents can claim you as a dependent. (If you’re a student, keep in mind that scholarships and grants are typically tax-free, but there may be situations in which you must include them in taxable income.)
Each year, the IRS publishes a table like the one below, with the filing requirements for people who aren’t claimed as a dependent on someone else’s return. For example, if you’re under 65 and your gross income was at least $12,550 in 2021, you would need to file a return for that year. Gross income is anything you receive in the form of payment that’s not tax-exempt (i.e., money, services, property, or goods).
If your income is greater than the levels listed in the table, you must file a tax return. However, income isn’t the only factor involved. Other things can affect your filing status, too, including:
- Whether someone else claims you as a dependent
- Whether you’re married or single
- Your age
- Whether you’re blind
Learn more about individual filing statuses at irs.gov/individuals.
6 steps to filing your tax return
USA.gov breaks down the tax return process into six steps. Let’s dive into each of these steps, along with where to find more information.
Step 1: Gather your paperwork
Compiling everything you’ll need to file your tax return is an important first step. You don’t want to be trying to track things down as you’re in the middle of completing your filing.
Important items to gather include:
- A W-2 form from each employer
- Other earning and interest statements (1099 and 1099-INT forms)
- Receipts from charitable donations or qualified expenses (if you’re itemizing your return)
If you worked just one job, you’ll have just one W-2, but if you had more than one job in the year you’ll need to have a W-2 from each employer.
If you worked as an independent contractor or freelancer (and made over $600) you will get a 1099 from each company you did work for. Each financial institution you have an account with should also send you a 1099.
It’s the responsibility of these companies to mail or email you the appropriate documents by the last day in January.
Step 2: Choose your filing status
There are five IRS filing statuses, and step two of the filing process is to choose the one that applies to you. These five statuses include:
- Single: You’ve never married, or you’re legally divorced or separated by court order.
- Married filing jointly: You’re married, and you and your spouse file a single, joint return together.
- Married filing separately: You’re married, but you and your spouse elect to file separate tax returns.
- Qualifying widow(er): You were married, but your spouse died during the last two years. You must have a dependent child to qualify for this status, and you can only use it for two years after the year in which your spouse died.
- Head of household: With this label, you’re “considered unmarried.” You might still be legally married to your spouse, but you didn’t live together at any time during the last six months of the year. You must additionally have a qualifying dependent who lives with you, and you must pay for more than half the cost of maintaining your home during the tax year.
Step 3: Decide how you want to file your taxes
The third step in the filing process is to figure out how you’ll file. The IRS highly recommends using tax preparation software (e.g., TurboTax, H&R Block, etc.) to e-file your tax return. Many of these software companies offer a free edition for basic tax prep.
The tax software program will ask you some financial and income related questions, then automatically fill out the appropriate forms for you, based on your answers.
If you’re comfortable preparing your own taxes, the IRS also offers Free File Fillable Forms that can be printed out, used to file your returns, and sent electronically or by mail.
Step 4: Determine if you’re taking the standard deduction or itemizing your return
Every taxpayer is entitled to claim at least one tax break. These come in the form of tax deductions and tax credits. While tax deductions reduce the portion of your overall income that you must pay taxes on, tax credits are subtracted directly from what you owe the IRS.
If you pay student loans and/or have college education expenses, you may be eligible for some tax reductions. Other common credits include the Child Tax Credit, the Credit for Other Dependents, the Earned Income Tax Credit, and the American Opportunity Credit, which is an educational credit.
The “standard deduction” is a specified amount that the IRS lets you subtract from your income, and it varies according to your filing status. For example, for the 2021 tax year, the standard deductions are:
- Single taxpayers: $12,550
- Married couples filing separately: $12,550
- Married couples filing jointly: $25,100
- Heads of household or qualifying widow(er): $18,800
You can claim the lump-sum standard deduction, or, you can itemize your deductions. Itemizing involves listing every qualifying expense you paid all year and entering the information on a separate form called a “Schedule A” that you’ll submit with your return.
(It makes sense to itemize your deductions only if the total of your qualifying expenses add up to more than the amount of your standard deduction.)
Step 5: Learn how to make or receive a payment
If you qualify for a refund, you’ll usually receive it within three weeks of the IRS receiving your return. (If you elect to have it directly deposited into your checking or savings account you may get it even faster.)
In the case that you instead owe taxes, the IRS offers several options where you can pay immediately or arrange to pay in installments.
Step 6: File your return by the due date
If you’ve done the above steps, you’re ready to file! Just make sure your return is submitted by the due date (usually around April 15th).
Should I pay someone to do my taxes?
Whether or not you hire a tax professional is a personal decision and comes with pros and cons. If your return will be more on the complex side, you might want to consider hiring a professional.
If your financial situation is fairly straightforward (which it typically is if you’re in college or early in your career), you’ll probably be okay just doing it on your own using tax prep software. Your filing might be free, or will at least be much less than you would pay a professional, which averages anywhere from $188 to $481, according to the National Society of Accountants.
Here are a few scenarios where you might consider paying an accountant or other tax preparer to help with your return:
- You’re self-employed
- You’ve experienced a major life event (e.g., got married, bought a house, moved to a different state)
- You own rental property
- You have foreign accounts, investments, or trade stocks
If you do decide to consult a tax pro, make sure to get an appointment in advance, especially if it’s getting close to April. Tax season is a busy time for them!
Visit the IRS website for help
If you have questions about filing your tax return, you can visit the IRS website for tons of helpful information. (You can also call the IRS, but just be warned, the wait time to speak with a representative may be very long.)
