Guide to Adulting: How to file tax returns
PHOTO Bree Soule
February 19, 2021
When accounting for how much money should be on your paycheck, the estimate is often higher than what is actually received; this is because of taxes. While a worker may earn $200, the net pay— or the amount on the paycheck— will be less than the gross pay. In the beginning of the new year, teenagers and adults begin filing tax returns to possibly get tax money back.
To do this, employees must get a W-2 form from their employer, or a 1099 if your employer does not withhold taxes from employee’s checks. By law, employers must send this form to their employees by Jan. 31 each year. This form includes the employee’s annual earrings, amount withheld from their paycheck for federal income taxes, social security, and any applicable state and local income taxes.
If you are self-employed, however, “individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves,” as stated by the Internal Revenue Service (IRS).
Originally, a W-4 form is filled out when you get a job— this is what employers use to know how much tax to withhold.
You can file your income tax returns in a couple of ways. According to Noah Morgan, the owner of Ark Tax Services, most young people’s taxes are very simple, and the key is communication with the parents. One major question to ask is if the parent is claiming you as their dependent. No matter the answer to this, you should still file a tax return. According to the TurboTax website, “Because it could save you thousands of dollars on your taxes. For tax years prior to 2018, every qualified dependent you claim, you reduce your taxable income by the exemption amount, equal to $4,050 in 2017.”
“Any income you had withheld from your paycheck for Federal and State Taxes will get refunded to you if your total income was less than the standard deduction which is $12,400 for 2020,” Morgan said. “Make sure you select ‘someone else is claiming me as a dependent’ when going through and creating your profile if using an online software like Turbotax. If you are using a Certified Public Accountant (CPA) or Enrolled Agent to prepare your return, they will generally ask these basic questions. Don’t count on your mom or dad to know the answer as they are like most Americans confused by many complexities of filing taxes.”
Most teenagers will fill out the 1040EZ tax form, however, online softwares like TurboTax can simplify the process of doing taxes even more. Teenagers often won’t need a financial planner as their income is very simple, and most will receive a refund on their taxes. If filing by mail, you must attach your W-2 form. You could also electronically file on the IRS website.
“Using an online software to do your taxes can work for most people, however, it’s a lot like changing the oil on your car,” Morgan said. “You can either do it yourself or pay someone to do it… According to the National Society of Accountants’ 2018–2019 Income and Fees Survey, the average tax preparation fee for a tax professional to prepare a Form 1040 and state return with no itemized deductions is $188. Itemizing deductions bumps the average fee by an additional $100 to $294.”
You have to qualify for itemized deductions. According to Money Under 30, “Itemized deductions are comprised of various types of certain expenses that you incur throughout the year.” These are things that are tax-deductible. You should only itemize if the allowable itemized deductions are greater than the standard deductions, if not, use standard deductions.
“Most people do not itemize anymore unless they have a lot of mortgage interest on the loan for their home and or they give a lot to charity,” Morgan said. “You have to have more than $12,400 in deductions for single filers and $24,400 in married filers to consider itemizing. This is a combination of donations, healthcare bills in excess of a percentage of your income, mortgage interest and state/local taxes.”
If you’re looking to reduce taxable income, Morgan recommends these five things: Plan for taxes before year end, otherwise you could be left with surprises, if you think there are any tax planning strategies to consider, ask your Financial Planner or Accountant before year-end as it is always best to review them prior to Dec. 31 for most taxpayers, ask yourself, “Can you realize any gains in your investment portfolio tax fee by tax gain harvesting without moving into the next tax bracket?” and “Are there any losses in your investment portfolio to realize to reduce your taxable income?” and finally, if you give money to a church or charity make sure you do it in a tax-efficient manner.
Overall, taxes for the most part are fairly simple. While some may have to hire a financial planner, the best resource for teenagers are their parents— the easiest way being filing online. However, taxes must be filled out by tax day, April 15. If you can’t pay the amount owed, you must let the government know or you could end up in jail or with a fine. When you don’t file your return, you also risk losing your refund. You should file your tax return as soon as possible to avoid the risk of this occurring.
