Archive for the ‘Personal Finance’ Category:
This blog uses affiliate links and maintains financial relationships with various partners.
Everything You Should Know About Filing Your Taxes for the First Time
Filing your taxes for the first time can be a nerve-racking experience. After all, the IRS means business when it comes to taxes. Perhaps you fear that you will make a mistake and the secret IRS police will come into your classroom and take you away. Or rather, you may be unsure as to whether you are actually getting the most out of your return. You may have many preconceived notions about what the IRS is like, making you terrified of making a mistake when you file. However, these issues should not burden you. This article is meant to dispel the common fears regarding tax season by educating you on everything you need to know about filing your taxes for the first time.
Obtain all of your W-2 Forms
Many students start off working multiple jobs. This is often the case in college or during summer breaks. Perhaps you started with one job, found you had extra time or did not make enough money, and then you gained another. Or perhaps you quit one job for another, higher paying job. You may have easily gone through three jobs in a year, so it is important to keep note of the jobs you have had. Furthermore, make sure all of your jobs, past and present, have updated information as to your current address. Make the process smoother by having the human resource department send your W-2 directly to you and not to your parents or an old apartment.
Check for Mistakes
The first thing you should do before you file is to check your statements for any errors. Your human resource department will not always be perfect, so it is always possible that they will make errors on your return. Check your W-2 for any errors in the spelling of your name, job position, and especially your social security number. If there is even one mistake, it is best to let your human resources department know so they can fix it and you can receive a new W-2. Secondly, you should check for any errors in your filing status and any taxes withheld. If it doesn’t match with your original W-4, let your job know to prevent further discrepancies with the IRS.
Remember You Cannot Claim Exemptions if you are a Dependent
Unfortunately, you will likely not get as much out of your return if you are still listed as a dependent. If you are unsure, ask your parents before filing. This is a common mistake students make. The IRS states that a dependent is either a qualifying child or qualifying relative who meets age requirements, full-time student status, or income. Investigate the details to be sure you are not a dependent.
Whether you owe or you are owed a return, you should always file. Tax law states that any student who earned less than $6,100 in the tax year does not have to file. This may be a relief to you if you forgot to file, however, you are missing a huge opportunity if you choose not to file. Because that amount makes up for such a small income, you can earn much of that money back. Not only that, but filing every year will get you in the habit of making it a priority so you always have accurate records.
Reach Out for Help
Many students reach out for extra assistance when they go to file their taxes. If you already find yourself in a complicated tax position, it is especially important. While accounting software can help you itemize all of your taxes and deductions, a tax professional can teach you so much more. By hiring a professional or talking to companies that help people with tax debt, you can get services with a human touch. You can ask questions to a live person who can educate you on tax law and help outline your financial future.
Filing your taxes doesn’t need to be scary. Keep these tips in mind and you’ll be an old pro at filing in no time.
We don’t have any huge financial goals right now, so we thought we’d set one: maxing out both of our IRAs. We’re already contributing to retirement, but we figure more is better while we’re young and don’t have other pressing needs. We skipped out on IRA contributions for most of 2011, so we’d like to catch up.
We’re putting a little bit extra toward our mortgage (since even small contributions make a big impact) and we’re contributing some to our kids’ 529 college plans.
For our age, we can each contribute $5,000 to our IRAs. We’ll have until tax day in April 2013 to make all of our 2012 contributions.
We set up automatic transfers from our bank to our IRAs at Vanguard, to occur a few days after each payday.
Until recently, we were contributing $116/each biweekly ($3,016/year).
The other day, I adjusted our automatic contribution to $125/each biweekly. Bumping it by just $9 means an extra $234 per account, or $3,250.
Even increasing our contribution by $4 on a biweekly basis would add $104 more per year.
Shane was blessed to receive a cost-of-living raise effective in his most recent paycheck. We took most of the increased amount and set up an automatic bi-weekly transfer to go to a new sub-account at our bank at ING Direct. The sub-account is labeled “IRA.”
Bi-weekly, $50 will go to the IRA sub-account. In a year’s time, we’ll have $1,300 there plus a few dollars in interest.
Why not put that $50 in our IRAs at Vanguard from the get-go?
Well, I’d like to have a little bit of a buffer. If the tax laws and credits change this year, it would be nice to have some additional money in savings so we can pay our taxes if we need to. Or, we could use the money for another purpose (like a medical deductible). If nothing comes up between now and then, we’ll put $650 in each IRA.
That brings us to a hypothetical $3,900 in each IRA. “Just” $1,100 each to go.
It sounds like a lot of extra money to scrape together, especially when we’re already doing our darnedest to save.
Before I calculated the exact dollar amount, it was so vague that it wasn’t even a goal. Now, we know we need to come up with an extra $2,200 somewhere, total.
Shane will have a third paycheck in June and again in November. After all the other bills and savings goals are accounted for in those months, we should have a few hundred dollars available to put in the IRA (or IRA savings fund, whichever).
Second, he is supposed to receive a bonus twice per year. Assuming that goes as scheduled, we’ll be able to tap some of the bonus money for the IRA. If the bonus goes away, well…we weren’t counting on it for something critical so it’ll be ok. We’ll be disappointed, but we’ll be ok. :)
Other income sources to fund the remaining $2,200:
- My blog earnings. It’s drying up fast over here, though and I think it has to do with the “big G’s” search changes. Ugh.
- Selling unwanted things on eBay, as always
- Our tax refund from 2011, assuming we don’t spend it all elsewhere we’re replacing our kitchen countertops and doing some things to the yard) and then our medical expenses from a few days ago.