You Never Forget Your First Time: Four Tax Tips for First-Time Filers

You never forget your first time.

But let’s make sure your first tax filing experience is memorable for positive reasons — and won’t come back to haunt you. Follow these four essential tax tips for first-time filers and you’ll be off to a good start.

1. Should I file a tax return at all?

Anyone earning income should consider filing a return. However, filing requirements depend on a combination of circumstances, including filing status, income and age. For individuals just starting out, one of the biggest determining factors will be whether they’re claimed as a dependent by their parents. This means taxpayers with nearly identical circumstances may have different requirements.

Example: a single 18-year-old who is claimed as a dependent and earned $9,000 in wages and tips from part-time jobs must file a tax return because she is only allowed to claim a standard deduction of $5,800 in 2011; she’s not allowed to claim her personal exemption. Yet, if this person was not claimed as a dependent, filing would not be required because gross income did not exceed $9,500 (the 2011 filing threshold for someone who files a return as a single individual and claims one personal exemption). Filing thresholds are different for each filing status and are determined by adding the personal exemption and standard deduction amounts together.

But it wouldn’t hurt to file anyway. “Workers who are not required to file a tax return because their income is below their filing threshold should file a return to get a refund of all taxes withheld and/or to claim other tax benefits, such as the Earned Income Tax Credit,” said Elaine Smith, master tax advisor with H&R Block.

2. What forms do I need? And what’s the difference between a W-4 and a W-2? W-2 Form

Look in the mail or online for your W-2 — it’s coming from your employer. Form W-2 is prepared by employers at the end of the year and reports wages paid and taxes withheld for the year; some employers mail Form W-2 in late January, some provide them online (W-2 information also is sent to the IRS and the Social Security Administration).

Form W-4, on the other hand, is completed by the employee and is used by the employer to determine how much income tax is withheld from paychecks to cover tax liability. The amount of tax withheld is based on the number of withholding allowances an employee claims. You should adjust your withholding allowances when major life changes occur (e.g., getting married, having a baby or buying a house); the number of withholding allowances is generally close to the number of exemptions claimed on tax returns.

3. Which 1040 federal income tax form do I use?

There are three versions of Form 1040: 1040EZ, 1040A and Form 1040. Form 1040EZ is for the least complex individual tax situations and Form 1040 is for the most complex – and for any situation when you don’t qualify to use Form 1040EZ or 1040A.

You may use Form 1040EZ if you have no dependents, no itemized tax deductions, income only from wages and unemployment compensation, and $1,500 or less in interest income. The only tax credit that can be claimed on Form 1040EZ is the Earned Income Tax Credit. Pro tip: Form 1040EZ can be filed for free using any H&R Block resource – on a smartphone, online, in an H&R Block office or via the new Block LiveSM online assisted tax preparation format through Feb. 29.

Form 1040A accommodates dependent exemptions, dividends, pension income, education benefits and more.

Form 1040, “the long form,” may be used for any income level, self-employment income and all other types of income, itemized deductions and all personal credits.

4. How should I tackle this? DIY or with a tax professional?

Do-it-yourself software and online tax programs will select the appropriate forms and use everyday language, making tax law somewhat easier to understand. However, assistance from a qualified tax professional can help put you at ease — and the extent of your tax knowledge can end right here.

Ultimately, it’s your comfort level and personal preference that will determine the best method to get ‘er done.

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