Being an adult has its perks, from being able to rent a car and book a hotel room to the chance to earn a living and rent an apartment. But life as an adult also comes with some challenges, including the burden of filing and paying taxes.
If this year is the first time you will be filing a tax return, it is important to plan ahead. Mistakes are common among first-time filers, and those blunders could delay a much-anticipated refund or even trigger an audit from the IRS.
Here are 9 of the mistakes first-time filers are likely to make – and how you can avoid them.
Note: If you or someone you know owes back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution team can navigate the IRS maze so that you have nothing to worry about.
1. Forgetting to file
When filing taxes is new, it is easy to forget to do it. Forgetting to file is a big risk for first-time filers, one that could have long-lasting implications for your adult life.
2. Not reporting all your income
As a first-time filer, it is easy to forget to report all your income, especially if you work a side hustle or participate in the gig economy. Failing to report all your income is a big no-no, and this mistake could trigger a visit from the IRS.
3. Not tracking the cost basis of your investments
If you invest in stocks, bonds or mutual funds, you may owe capital gains tax when you sell, so it is important to track the cost basis (how much you paid and any cost for purchase such as broker’s fees) as you go along. If you fail to track the cost basis, you could end up overpaying taxes on any future sales.
4. Paying for a refund anticipation loan
As a first-time filer, you are probably anxious for your refund, but paying to get it could be a big mistake. Unless you are in dire need, it is better to wait the 7-10 days for your e-filed return to be processed and your direct deposit to land in your bank account.
5. Choosing the wrong filing status
If you choose the wrong filing status, your return could be delayed, or even rejected outright.
6. Not asking your parents if they are claiming you on their tax return.
If your parents are still providing support for you, they may be able to claim you as a dependent when they file their taxes. If you incorrectly claim yourself as a dependent in this situation, you could be in trouble with the IRS. Even more importantly, you could land your parents in hot water as well.
7. Failing to claim all your deductions
From student loan payments to mortgage interest, the IRS provides a wealth of deductions that can reduce taxes for first-time filers. Failing to claim those available deductions is like leaving money on the table.
8. Waiting until the last minute
Many first-time filers assume that their returns will be simple, and that they can wait until the last minute to file. If you wait until April 15, you will be at the mercy of everything from closed post offices to a failed internet connection, so start early and get this chore out of the way as soon as possible.
9. Not planning for next year
When you are neck deep in tax paperwork, it is hard to see ahead, but failing to plan for future taxes is a big first-time filer mistake. Now that your return has been filed, do some homework on additional tax deductions, including those for 401(k) and IRA contributions.
The April 15 tax filing deadline will be here before you know it, and when it is over you will have officially become a taxpayer. If you want your first foray into taxpayer status to be a successful one, avoiding the 9 mistakes listed above is a good place to start.
If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.