Taxes are a difficult concept for many people, and they’re complicated enough that most of us hire professionals to do them. But if you want to file on your own this year (or next), here’s what you need to know about the process.

The “how to do taxes yourself step-by step” is a guide that will teach you how to do your own taxes for beginners. It includes all the information you need, and it’s easy to follow.

I used to connect “paying your taxes” with being an adult. When tax season arrived, I’d find my father at the dining room table on weekends, huddled over a coffee-stained 1040 instruction book made of its distinctly poor pulp, calculating his and my mother’s adjusted gross income for the year. The charts, tables, and spreadsheets in the 1040 instruction book made tax preparation look like an arcane astrological exercise that only the learned could comprehend.

I couldn’t wait to fill out my own taxes, since I was such a nerd. Fast forward to high school, and I was busing tables at Chili’s for the first time. I had my share of all the free Chicken Crispers I wanted, and the money was nice. I asked my father if he might introduce me into the hidden teachings of the 1040 form and associated instruction book when tax season arrived. I recall going through the worksheets with a pencil first, filling in the various lines, and then having my mother double-check my numbers, exactly as my father did. I felt like I was taking a step towards manhood when I signed my name at the bottom of the form, indicating that the figures I reported were accurate.

That’s right, it’s completely geeky. I understand.

“Doing your taxes is really very simple,” I recall thinking. Why do people complain so much about it?”

Now that I’m an adult with a house and other things, I can see why folks are irritated by tax filing. They’re a hassle to deal with. Taxes grow more difficult as your financial life becomes more complicated. “Mo Money, Mo Problems,” as the late, great Notorious B.I.G put it so brilliantly.

I’ve entirely lost the allure of “paying your taxes” from my youth. Fortunately, paying your taxes is straightforward when you’re young and just starting out in life. It’s so straightforward, in fact, that there’s no reason why a young guy shouldn’t take on this mature role.

However, in recent years, I’ve witnessed an increase in the number of adult males whose fathers continue to handle their taxes for them. Seriously. Guys in their late twenties and early thirties I know who have never done their own taxes since their parents handle it for them. Of course, this is just anecdotal, but I’ve spoken to others who have witnessed the same thing: adult guys who don’t know how to do their own taxes.

So, to assist those young guys who have never filed their own income taxes before, I’ve created a beginner’s guide to help them get started. The minimal elements are covered in this article. The United States Tax Code is a maze of rules and regulations. To assist people traverse it, tomes as thick as telephone books are published. For the sake of this article, I’ll assume you’re young, have just started your profession and family, and rely only on salaries. The complexities of capital gains and losses will have to wait for another day.

 

Perhaps, before that day arrives, both major parties will join together to change the tax law. And who knows, maybe I’ll put on a pair of slim pants one day.

You Should Know the Basic Tax Terminology

Vintage man looking stressed to see taxes papers.

Crap. Again, I’ve forgotten how marginal tax rates operate.

The tax language is one of the most frightening aspects of preparing your taxes. I’ve included some of the key phrases you’ll need to understand how income taxes operate below.

Allowances for Withholding. You’ve undoubtedly observed that you don’t receive all of the money you earned when you get your paycheck. Your company deducts taxes from your paycheck, or withholds them, and pays the IRS the taxes you owe on your earnings.

A Form W-4 allows you to determine how much or how little your employer withholds from your paycheck. A W-4 forms assists you in determining your withholding allowances, which notify your employer how much or how little money to deduct from your paycheck for taxes. Your employer withholds less income tax if you have more withholding allowances; if you have fewer allowances, they withhold more. There are advantages and disadvantages to having more or fewer withholding exemptions. Perhaps we’ll address these in a later article.

Gross income (adjusted) and taxable income (adjusted). When you pay your taxes, you aren’t paying taxes on the whole amount you earned during the year. Your adjusted gross income is your income after certain deductions, such as IRA contributions or student loan interest payments, have been deducted. After you deduct the exemptions and itemized deductions that you’re qualified for from your adjusted gross income, you’ll have taxable income.

Rate of taxation. The amount of income taxes you pay grows as you earn more money under our progressive income tax system. The Internal Revenue Service (IRS) has categorized income levels into tax brackets. Each bracket has its own tax rate.

The federal tax brackets for 2011 are as follows:

Income Tax Bracket Filing Jointly by Married Couples Single
Bracket ten percent ranging from $0 to $17,000 ranging from $0 to $8,500
Bracket 15 percent $17,000–$69,999 From $8,501 to $34,500
Bracket with 25% chance $139,350 – $69,001 From $34,501 to $83,600
Bracket of 28 percent $212,300 – $139,351 $174,400 – $83,601
Bracket with 33% chance $379,150 – $212,301 $379,150 – $174,401
Bracket of 35 percent More than $379,150 More than $379,150

So, if you were single in 2011 and earned $34,000, you’d be in the 15% tax bracket. Now all you have to do is multiply. Isn’t it true that you multiply 15 by $34,000 to find out how much you owe in taxes and then send the IRS a payment for that amount?

No, no, and no. There’s a catch, however. Your $34,000 isn’t entirely taxed at the 15% rate. That 15% is referred as in the industry as your…

Tax rate at the margin. I’ll tell you the truth. The notion of the marginal tax rate took some time for me to grasp. I’ve always assumed that if you’re in the 15% tax rate, you pay 15% on all of your earnings. It’s a frequent misunderstanding held by many individuals.

“The rate on the last dollar of income earned,” is a succinct description of your marginal tax rate. So, what exactly does it imply? When you see the marginal tax rate in action, I believe it is simpler to comprehend. Let’s pretend you made $34,000 in 2011 and are still unmarried. The marginal tax rate would be calculated as follows:

 

  • The first $8,500 of your $34,000 is subject to a 10% tax rate.
  • The remaining $25,500 will be subject to a 15% tax rate.

In this case, the final dollar(s) of money produced is the $25,500 above and above the initial $8,500.

Let’s look at another example to help you understand this notion. Let’s pretend you and your spouse are filing jointly and have a combined income of $80,000. The marginal tax rate, as seen in the graph above, is 25%. The following is how your earnings would be taxed:

  • The first $17,000 would be subject to a 10% tax rate.
  • The remaining $51,999 would be taxed at 15% (the $51,999 number represents the difference between $69,000 and $17,001 in the 15% tax bracket range).
  • The remaining $10,100 would be subject to a 25% tax rate.

In this case, the majority of your $80,000 is taxed at ten percent and fifteen percent, not twenty-five percent.

If you don’t understand this notion straight away, don’t worry. Even the most intelligent individuals make mistakes when it comes to marginal tax rates.

Rate of taxation that is effective. As a result, we now know that the tax rate given to your bracket isn’t the rate you pay on all of your earnings. The weighted average of the various tax rates that apply to your income is your effective tax rate. If your marginal tax rate is 25%, your weighted average effective tax rate is around 14.5 percent.

Exemptions from taxes. Uncle Sam does not require you to pay taxes on all of your earnings for the year. Individuals may take advantage of three types of tax benefits provided by the IRS: exemptions, deductions, and tax credits. They all work to lower your taxable income, but in various ways.

A tax exemption is a set amount that is automatically deducted from your taxable income. Personal and dependent exemptions are the two categories of exclusions available.

  • Exemptions for individuals. You may claim a personal exemption if you’re unmarried, have no children, and your parents aren’t listing you as a dependant on their tax returns. A personal exemption will lower your taxable income by $3,700 for the 2011 tax year. If you’re married and filing jointly with your wife, you may claim a personal exemption for her, lowering your taxable income by another $3,700.
  • Exemptions for dependents. A dependant exemption is a tax break you may get for each person you financially assist. This usually refers to your children, although other family members may also be eligible. For each dependant you claim on your taxes, you may deduct $3,700.

Exemptions are not available to everyone. Exemptions are tapered off after you reach a specific income level. The maximum for a single guy is $166,800. If you file jointly with your spouse, the maximum increases to $250,000.

Deductions from taxes. Certain costs you incurred during the tax year that the government enables you to deduct from your taxable income are known as tax deductions. The government, for example, permits taxpayers to deduct the amount they spent on student loan interest during the tax year.

There are two methods for claiming tax deductions. First, you may deduct from your taxable income the standard deduction, which is a predetermined amount set by Congress. In 2011, the standard deduction is $5,800 for solo taxpayers and $11,600 for married couples filing jointly.

 

The itemized deduction is the second kind of tax deduction available. Instead of accepting the set amount, itemized deductions require you to make a list of all the individual “items” that are qualified for a deduction, total up how much you spent on them throughout the year, and deduct that amount from your taxable income. The following are examples of eligible costs that you may deduct from your taxable income:

  • Income taxes imposed by the state and municipal governments
  • Property tax is a kind of tax that you pay on your house.
  • The amount of interest you pay on your home loan
  • Donations to charitable organizations
  • Medical and dental expenditures paid out of pocket
  • Expenses associated with job hunting
  • Computers and telephones are examples of out-of-pocket work-related expenses.
  • Costs of running a home office

While itemizing your deduction is more difficult than taking the standard deduction, it has the potential to significantly reduce your taxable income. You’ll need to keep track of all your qualified expenditures if you want to itemize your deductions. In a moment, we’ll go through when you should take the standard deduction vs when you should itemize your deductions.

Credits for taxes. Tax credits are tax incentives that are taken directly from the tax you owe, unlike tax exemptions and deductions, which lower your taxable income. You may be eligible for many tax credits, including the Hope Scholarship Credit, Child Tax Credit, and Earned Income Tax Credit.

Refund of taxes. There’s a possibility you’ve been paying the IRS more than you owe in taxes since money gets withheld from your paycheck throughout the year. You are entitled to a tax refund if this occurs. After all, it’s your money. Filling out your tax form determines the amount of your return. If you often get large tax returns, you may want to increase your withholding limits so that you may retain more of that money throughout the year.

Organizing Your Life

Man sitting in dilapidated room surrounded by taxes papers.

They said, “Organize your receipts.” They said, “It would make your taxes easy.”

Organizing all of the documents you’ll need to finish your taxes is perhaps the most aggravating element of the process. The only tax records you’ll need to keep track of when you’re just starting out in life are your W-2s and maybe the 1098-E form, which shows interest paid on student loans over the year. The quantity of documents you’ll have to keep track of will rise as your financial situation improves.

On January 1st, I name a basic manilla file folder with “McKay Taxes INSERT YEAR” to store all of my tax documents in one spot. When various businesses begin mailing me tax statements around the end of January, I just file them away in my folder. When my finances were simpler, I’d take my folder and the proper 1040 form to the tax office in February and file my taxes. I just drop the folder off at my accountant’s office now that I use one. It’s as simple as lemon squeezy.

The following is a list of the many tax papers and receipts you should save in your personal tax folder:

 

  • Your employer’s W-2
  • Forms 1099-MISC are used to report self-employment income.
  • Forms 1099-INT (interest) and 1099-DIV (dividends) are available.
  • Forms 1099-B detail stock and bond brokerage transactions.
  • Interest paid on student loans is shown on Form 1098-E.
  • Interest paid on a mortgage is shown on Form 1098.
  • Deductions such as charity donations, medical costs, and IRA contributions must be documented.

This isn’t a complete list. If you want to itemize your deductions (see below), you’ll need to maintain more records. Make a duplicate of your 1040 for your personal records once you’ve filed your taxes with the IRS. Place it in the same folder as your other tax paperwork and keep it for at least three years. You’ll need to be able to produce your tax documents to the IRS if you’re ever audited (hopefully not).

What Kind of Form Do You Require?

The instructions booklet about tax form.

While utilizing a computer software may make preparing your taxes a breeze, I recommend at least doing it the old-fashioned way with pen and paper once. Flipping through the IRS instruction book to figure out your taxable income is a wonderful method to familiarize yourself with the tax code’s fundamental rules and regulations. Plus, the tactile aspect of a pen, paper, and calculator makes tax preparation oh so “romantic.” For extra impact, use a green eyeglasses. All of the forms are available for download at irs.gov, or you may visit your local library, which should have a rack full of them.

The 1040EZ, 1040A, and 1040 are the three types of personal tax forms available. They come in a variety of lengths and levels of difficulty. Your objective is to choose the most basic form possible for your case. When you use tax software to prepare your taxes, the computer selects which form to use depending on the information you submit. When you do your taxes by hand, you must choose which form to complete. This is how you do it:

1040EZ. The 1040EZ form is the shortest and easiest to complete (see what they did there?). If you match the following criteria, you may utilize the 1040EZ form:

  • Your total annual income is less than $100,000.
  • Your interest income is less than $1,500 per year.
  • You only have salary, interest, and unemployment compensation as sources of income.
  • Are you filing as a single person or as a married couple filing jointly?
  • You haven’t made any income modifications.
  • You’re merely taking the standard deduction.
  • The Earned Income Credit is available to you.
  • There are no additional tax credits that you are claiming.

Use the 1040EZ form if your primary source of income is wages and some bank interest, and you don’t have any income adjustments in the form of deductions. This definitely describes you if you’re young, in college, or don’t own a house.

The 1040EZ form is so straightforward to fill out because it combines your exemptions and standard deduction into one simple subtraction issue. If you’re single and your parents don’t list you as a dependant, you’ll have $9,500 in total exemptions and standard deductions. Your exemption/standard deduction nut is $19,000 if you’re married filing jointly.

 

1040A. The lines on your tax form grow as you add layers to your financial life. You’ll need to upgrade from the 1040EZ to the 1040A form if you’re creating an IRA or if you’ve invested and profited in the stock market. If you fulfill the following criteria, use Form 1040A:

  • Your total annual income is less than $100,000.
  • Any age, any stage of the filing process
  • Wages, interest, dividends, capital gain distributions, IRA or pension distributions, unemployment compensation, or Social Security payments are all sources of income for you.
  • The following income adjustments are allowable: penalty for early withdrawal of funds, IRA contributions, student loan interest, and jury duty money paid to your employer.
  • Child and dependent care credit, credit for the aged and handicapped, education credits, retirement savings contributions credit, child tax credit, and earned income credit are all tax credits that you may claim.
  • You’re merely taking advantage of the standard deduction.

The 1040A form is available to the majority of taxpayers. If you’re married with children and have graduated from college, you’ll almost certainly need to utilize the 1040A form. 1040. The 1040 form is for those whose financial situation has progressed beyond a single W-2 form and certain student loan interest payments. If you have a mortgage or make money from a side company, you’ll need to upgrade to the 1040 form. If you fulfill the following criteria, use the 1040 form:

  • You make at least $100,000 each year.
  • You’re claiming your deductions one by one (such as mortgage interest or charity)
  • You earn money via a rental, a company, a farm, an S-corporation, a partnership, or a trust, among other sources.
  • You have earned earnings in another country, paid taxes in another country, or are seeking tax treaty advantages.
  • You may have sold stocks, bonds, mutual funds, or real estate.
  • Adjustments to income for educator expenditures, tuition and fees, relocating expenses, or health savings accounts are being claimed.

Deductions: Itemized or Standard?

We already reviewed the two types of tax deductions: basic and itemized. The standard deduction is a set amount; itemized deductions are more difficult, but they may lower your tax burden more than the standard deduction. You may only claim one of these deductions, therefore you must choose between the standard deduction and itemizing your deductions.

Which choice you select is determined on your own financial circumstances. The usual guideline is that you should itemize your deductions if the amount of your itemized costs exceeds the standard deduction ($5,800 single, $11,600 married filing jointly). You should take the standard deduction if it is more than your itemized costs. Duh.

The majority of young individuals just starting out in life do not have enough tax deductible costs to justify itemizing their deductions. Stick to the standard deduction until you have a mortgage and are filling garbage bags with clothing and putting them on your doorway for Prevent Blindness. (Don’t forget to ask for a receipt!)

 

 

Watch This Video-

The “how to file taxes for free” is a guide that will help you with the basics of how to do your taxes. The article also includes some helpful tips and tricks, so be sure to check it out!

Frequently Asked Questions

How do I do my taxes for the first time?

A: I am a tax expert, and can answer any question you may have about taxes. You might want to consult with your accountant before asking me anything though!

How can I do my taxes by myself?

A: Unfortunately, this is something that you need an accountant for.

Is it simple to do your own taxes?

A: It is not simple to do your own taxes. There are many factors that will impact the success of doing your own taxes, such as knowledge and skill in completing tax forms correctly, accurate recording of income and expenses related to running a business or making investments, good time management skills for keeping track of deadlines set by employers, etc.

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