Filing Your First Income Tax Return

Tuesday, March 25 at 10:55 AM
Category: Personal Finance

Filing your income tax returns may sound frightening, but it is not as bad as it may seem. It is something everyone has been doing since 1913 and is something you will be doing for the rest of your life. You may decide to use a professional to prepare your return or prepare it yourself with or without the help of income tax software. In any case, there are some things you should know to make the whole process easier.

Basics
How do income taxes work? The income tax laws are quite complex, but they generally boil down to a few fundamentals:

  • Income subject to tax includes wages, investment income (dividends, interest and capital gains), distributions from retirement plans, self employment income, income from partnerships and Sub-Chapter S corporations and a few other items.
  • Then, that income is reduced by certain adjustments. Most people have few of these, other than deductible IRA contributions and certain tuition and educational expenses.
  • You then get deductions for itemized expenses like state and local taxes paid, mortgage interest, charitable contributions and a few other less common items. If you do not have a lot of these itemized deductions, you are allowed to take a standard deduction. For 2014, the standard deduction for single filers is $6,200 and $12,400 for married couples filing a joint return. You also get a reduction for personal exemptions you claim.
  • The net of these three items is your taxable income.

Once you have your taxable income calculated, you then apply different tax rates* based on the bracket of your income. There are different rates for single individuals and married couples filing joint returns. Think of this like a stair step – income in your lowest brackets is taxed at the lowest rates and as you climb the stairs, your taxable income gets taxed at higher rates.

Then you determine if you owe money with your return or if you have a refund coming. Your employer withholds income taxes from each paycheck. You simply compare what has already been withheld with your calculated tax liability. Generally, unless you have a lot of non-wage income or a complicated tax situation, you will have a small refund or owe a small amount. If your refund is large or if you owe quite a bit, you should consider changing how much you are having withheld.

Information you will need
For most people starting out and not using itemized deductions, the information you will need is simple – your employer will send you a Form W-2 for your wages and your financial institutions will send you Form 1099s with information on your dividends, interest and other investment income.

If you are itemizing your deductions because you have deductions larger than the standard deduction amounts, then you will need information documenting those expenses. Your W-2 will have information on state and local income taxes withheld, you will get a statement from your mortgage lender with mortgage interest information and you will need cancelled checks or other receipts for other deductions.

When to file
Your income tax return is due on April 15 of the following year. For example, your 2013 return is due on April 15, 2014. You can file earlier if you wish. You can also file an application for extension of time to file your return, but most people do not do this. In addition, getting an extension does not remove the requirement of paying any amount due beyond April 15.

What IRS form(s) you will need
If you are not using itemized deductions, you can probably use IRS form 1040 EZ. Otherwise, you will probably need several forms – 1040, Schedules A & B and Schedule D. These forms are available online at www.irs.gov,* and you can usually find them at public libraries and post offices. You may also want to consider using income tax software to prepare your return.

Final words
Everyone’s tax situation is different. This article presents only some of the basic information you may find helpful. If your situation is complicated, or if you do not feel comfortable with any part of preparing your return, then find and use the services of a qualified tax professional.

The views of this article are for general information use only. Please contact and speak with a subject expert when specific advice is needed. Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

Tags: Tax
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