Tax Guide for First-Time TaxpayersPublished:
What You Need to Know About U.S. Federal Income Taxes, Plus Tips for Preparing & Filing Your First Tax Return
Are you an individual who’s filing your taxes for the first time this year?
Welcome to the bizarre and confusing world of income taxes. Here is some basic information that you will need to know about filing and paying federal income taxes.
Individual Income Tax
If you earn money, you will likely need to report your income and pay taxes on what you earn. In the United States, the Internal Revenue Service (IRS) is in charge of administering federal income taxes and processing income tax returns.
Many people pay taxes through withholding, which means that money is withheld from each paycheck to (essentially) pre-pay what will be owed to the IRS that year. Your employer will have you fill out a Form W-4 so you can decide how much to withhold. If you do not pay your taxes via withholding, you will probably need to pay quarterly Estimated Tax.
When you prepare your income tax return, you will need to indicate your filing status, which is based on your marital status and other household factors. There are currently 5 federal filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow/Widower.
RELATED: Withholding Tax Basics
Federal Tax Rates & Brackets
The amount of tax you owe is based on the tax rates that apply to you. Depending on your income level and filing status, you will fall into a certain tax bracket(s), and that will tell you how much tax you owe. There are currently 7 federal income tax rates for individuals – they are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The income tax rate system is a “gradual tax schedule,” which basically means that your taxes go up when you earn more money. There are a number of online tax calculators that you can use to help determine your income tax liability. Additionally, most tax preparation software will calculate your taxes for you based on the information you provide.
To see the full 2020 tax rate tables for each filing status, click HERE.
There are a variety of tax breaks (including tax credits and tax deductions) that can help lower your income tax liability. A tax deduction is applied to your taxable income, which lowers the amount of income you earned that is subject to tax. On the other hand, a tax credit is applied directly to your tax liability and reduces the actual amount of tax you owe.
Depending on your situation, you may qualify for education tax breaks, family or child tax breaks, and/or homeowner tax breaks. Make sure you explore all of the tax credits and deductions that are available to you. If you are unsure whether or not you’re eligible for certain tax breaks, you may want to consult a tax professional.
RELATED: Top 5 Tax Deductions for Individuals
Income Tax Return (IRS Form 1040)
The IRS requires you to file an annual tax return if your income is above a specific threshold. Generally, if your income falls below that threshold, you do not need to file a federal tax return. For tax year 2020, you must file a tax return if you are a Single filer and your income is over $12,400. (Note that if you are a Single filer who is 65 years or older, you must file a tax return if your income is above $13,850.)
The income tax return that most individuals file is Form 1040 – although senior citizens have the option of filing Form 1040-SR instead. You will use this form to report your income for the year and claim any tax breaks that you qualify for. You will also need to calculate and report the amount of tax you owe. If you paid more than you owe in taxes during the year (through withholding), you will receive the amount you overpaid as a tax refund.
RELATED: Common Tax Questions & Answers
Preparing Your Tax Return
You should gather and keep any important tax-related documents (such as W-2 forms, 1099-Misc forms, etc.) in a secure place so you are ready to prepare your tax return when the time comes. It’s recommended that you double-check any information you provide so you can avoid having to file an amended tax return and/or getting audited by the IRS.
You can choose to prepare your tax return yourself, or hire a professional tax preparer to do it for you. A tax professional can help you identify tax credits and/or tax deductions that you may not realize you’re eligible for – just make sure you choose a reputable company when dealing with your taxes.
Filing Your Tax Return
You can either fill out a paper tax return form and mail it to the IRS, or you can file your taxes online (also known as “e-file” or “e-filing”). Filing online is fast and easy to do, although you always need to be careful about sharing your personal information. Make sure you use a reputable company that is a certified IRS E-file Provider, as well as a secure (non-public) Internet connection.
Over 200 million Americans file an income tax return with the IRS each year. The normal filing deadline is April 15 (also known as “Tax Day”), when individual tax returns and payments are due. However, depending on your situation, you may be able to get a tax extension.
If you overpaid your taxes during the year, you will receive a tax refund from the IRS after you file your annual income tax return. To get your refund faster, choose the Direct Deposit option when you file so the IRS can deposit the money into your bank account. Otherwise, the IRS will mail you a paper check to the address you provided on your Form 1040.
A tax refund is basically like an interest-free loan you are giving to the IRS. If you would rather pay fewer taxes throughout the year and have a smaller tax refund, you will need to make adjustments to the Form W-4 that you give to your employer.