It’s that time of year again. The ads for free tax filing software are popping up left and right, which means the deadline to file your taxes is around the corner. Maybe you got your first job last year and you received your first W-2 from your employer. Maybe you’ve started freelancing or a small side business and are getting 1099s from your clients.
For first-timers and seasoned veterans alike, filing your taxes can be stressful. But to make things easier, Vox spoke with tax experts to find out the common mistakes first-timers make, how to avoid them, new tax issues first-time taxpayers should watch for, and the steps first-timers can take to make the process smoother.
Gather your documents
The tax documents you get in the mail? The receipts for your side hustle? You’ll need to keep those to file your taxes, says Robert Burnette, CEO and financial adviser at Outlook Financial Center. It’s common for young people’s parents to handle their taxes on their behalf if they’ve worked a part-time job, for example, so they may be handling it on their own for the first time after graduating college, he says.
The Internal Revenue Service (IRS) did not comment for this story, but the agency’s website advises taxpayers to hold onto receipts, canceled checks, and any other paperwork that can back up the information they’re putting into tax returns.
If you’re working a full-time or part-time job, you can expect to receive a W-2 form from your employer, per the IRS’s website. If you’re self-employed full time or have a side hustle, you can expect to receive a 1099 form in the mail from every client that paid you $600 or more last year, according to the IRS. (Generally, if you’ve earned $400 or more from self-employment, you’ll need to file your taxes.)
Determine your filing status
Are you living and supporting yourself without the help of your parents or guardian? Or are you still receiving support from them? The answer to that question will affect your taxes. Even if your parents are claiming you as a dependent, you can still file your taxes, but it may impact your or your parents’ refund, says Michelle Kuipers, director of the Low-Income Taxpayer Clinic at Ladder Up.
If you are a single filer and neither of your parents or guardians are listing you as a dependent on their taxes, you’ll automatically get a deduction of $14,600 for 2024, meaning the IRS cuts the amount of your taxable income automatically. If your parents claim you as a dependent, they’ll receive a higher deduction from the IRS, Kuipers says. But if you are supporting yourself without their help, they shouldn’t be claiming you as a dependent.
In the latter scenario, “The young person who’s working might get so much more benefit from that standard deduction, reducing their taxable income, than they would from Mom and Dad getting an extra $500,” Kuipers says. “I think it is really important to be on the same page with the parents.”
Track your expenses
If you do any sort of freelance or gig work or have a small side business, keeping records is crucial to further reduce the amount you’ll owe in taxes. If, for example, you drive for a ride-hail company, you can deduct the miles that you drive for work off of your tax bill, Kuipers says, which is something that first-time filers either don’t know or might forget. But, she adds, if you’re working full time and earning income from a side hustle, make sure to keep track of expenses for your business and not mix the two.
“Be very careful about your record-keeping for those two jobs, because [with] the business income, you can claim expenses,” Kuipers says. “But you can’t claim all of the mileage on your car for that year because some of it’s business. Some of it might be employment related to your wage job, and some of it might be commuting, which doesn’t count for either.”
To make it easier to track your expenses, get an Employer Identification Number (EIN) from the IRS and a separate business bank account for your freelance or gig work income, Burnette says. Thankfully, there are apps that can automatically track your business expenses. Some ride-hail drivers, for example, use Stride to track their mileage for their trips as well as the miles they drive between trips. Having a separate business bank account makes it easier to distinguish your main job’s salary from your side income, which will make it easier for your tax preparer or the IRS to assess the business expenses that you claimed if you are ever audited.
If you don’t know what an audit is, it’s basically a process in which the IRS reviews your financial information and accounts to make sure that you reported the correct info on your tax return. Generally, the IRS could review your taxes from three years ago and later, but they may go back further if they find a wildly inaccurate error.
“If the IRS comes knocking, oh, boy, I would love if they came knocking on May 1, but they don’t,” Kuipers cautions. “They sometimes come knocking one, two, three years later, and you’ve forgotten everything. So having it all in a business bank account or having an app record that you keep is huge for audit defense.”
Pay the owed taxes on your side hustle or small-business income
If you have a traditional job, your employer is likely taking out a certain amount (called “withholding”) from your paycheck. This amount would need to be changed if something big happens, such as if you get married or have a child, or if the tax law changes. If you’re self-employed or have a side business, however, you’re responsible for paying your own taxes on a quarterly basis, which you can pay online or via paper checks. To leave less room for error, Burnette advises filers to pay their taxes online.
To cover your quarterly tax payments, Burnette recommends saving about 20 percent or so of your income in a separate savings account so that you can pay your quarterly tax payments when they are due. You can find the due dates here. Not doing so can bring a big bill come tax time.
“If you don’t pay them quarterly and you get to the end of the year, even if you write a check and pay everything, they’re going to ding you with interest and penalties for not paying it the way they want you to pay it,” Burnette says. “So, you can meet your full tax obligation and still owe money.”
Include your investments
Sometimes Kuipers has seen Gen Z clients who bring their W-2 forms for their jobs, but they aren’t aware that they need to bring additional documents for their stock market or even crypto investments. First-time filers often forget that they have to account for any investment income they’ve generated in the past year, even if they haven’t made any trades, she explains.
Generally speaking, the investment portion of the tax filings can be fairly complicated for first-time tax filers, Kuipers says. For one thing, the forms look different from one firm to the next, so she advises that it’s best to get an experienced tax preparer to help you with that part.
Though crypto is fairly new, your digital currencies need to be reported on your taxes. But the amount of taxes you have to pay on them depends on whether you sell them at a loss.
“Don’t just think because it’s sort of a weird, nebulous digital currency that it doesn’t matter for your taxes,” Kuipers says. “It absolutely does matter, and it has to be reported either way if you gained or if you lost.”
Find a competent tax preparer
Whether first-time filers should get a tax preparer depends on how complex their situation is, Kuipers says. If, for example, you only have a W-2 from your job, you may be able to use the IRS free-file system or another software. More complicated situations involving investment accounts or self-employment income, she says, will likely require the expertise of a tax preparer.
Thankfully, tax newbies have more options to file their taxes for free. After reporting from ProPublica revealed that major tax prep companies had lobbied against a free-file tool during the Bush administration, the IRS revisited its efforts to create a free-file system. This year, the IRS’s new free-file system is available to taxpayers in some states whose adjusted gross income is $79,000 or less.
First-time filers who earn less than $64,000, have disabilities, or speak English as a second language might be eligible for the IRS’s Volunteer Income Tax Assistance Program (VITA). If you decide to pay for a tax preparer, Kuipers suggests that you check the IRS directory of federal tax return preparers to find credentialed tax preparers.
If a tax preparer does not sign their name to your return or designates it as a self-prepared return, don’t sign it, she cautions. Having their signature on it will provide you with a little bit more protection from the IRS if you are ever audited.
According to Kuipers, in that case, if you’re audited and something unusual or wrong shows up, “You have some guarantee that you used an expert and that the expert screwed it up, so there’s protection in that.” She adds, “If it says self-prepared, that means that you did it yourself, and you stand by what you put on there.”
File an extension if you need more time
The deadline to file your taxes is April 15. If you think you’ll need more time, you can file an extension. Though you will have until October 15 to file your tax forms, you still have to pay what you owe in April, Burnette says.
If you’ve overpaid your taxes in April, you’ll get a refund, but paying less than what you owe could result in penalties from the IRS. If you absolutely can’t pay the full amount you owe, the IRS has programs that enable you to pay what you owe over time — with, unfortunately, interest and penalties.
“The extension is a great option, especially if you’re at risk of filing an incorrect return,” Kuipers says. “Everybody would rather you file an extension and get it right the first time.”
Correct your return if you make a mistake
If you and your tax preparer somehow make a mistake, don’t worry. You can fix it by filing an amended return before April 15, but you’ll need to send it after the first one has been processed by the IRS, Kuipers says. That way, the IRS won’t confuse the two. Filing an amended return usually doesn’t come with fees or penalties, and you can do so within three years of the due date of the return of the tax payment, she adds.
“If you get your taxes done and then the next day something in the mail comes because maybe you forgot that income type or you forgot that you had a Robinhood account, and, ‘Oh no, I need to add that 1099-B,’ try to first take stock and make sure that’s the only thing that you forgot,” Kuipers says. “You want to amend as fast as possible with that accuracy in mind.”
This is a lot of information to digest, but don’t fret: If you organize your stuff (and maybe find someone to help you), you’ll get through it just fine.
