Taxes 101: Our Boss Babe Guide For First-Time Filers
Tax season can feel rather stressful and intimidating, even for seasoned members of the workforce. If you're planning to file your taxes for the first time this year, you've probably got a few questions about how the process works and exactly what is required of you. You may not even be quite sure about what a tax return actually is. If so, you're certainly not alone and have no reason to feel self-conscious or embarrassed. However, getting a grasp on the basics of taxes might help you feel a little more prepared before you speak to your tax professional or decide to file on your own.
Here is a first-time filers' guide to tax returns, including what they are, who is required to file one, how and when to go about filing one, and when it's best to rely on the services of a professional, rather than going at it alone.
What exactly is a tax return?
A 1040 tax return form is a statement of all the income you received during the previous year and all the taxes that were withheld from that compensation. Your return should include all taxable income, including wages, payments for freelance work, tips, bonuses, investment earnings, and unemployment or disability payments. This statement is filed with the Internal Revenue Service (IRS) and will be compared with the information they have on file to ensure that you have paid any taxes owed. Most people are also required to file a return with the state they resided in during the tax year being filed for.
The rate at which your income is taxed will depend on how high your total was for the year. As your income increases past set limits, which are adjusted for inflation each year, you become subject to higher tax brackets. However, only the portion of income over each limit will be taxed at a higher rate. For instance, according to the IRS, 2022 income up to $11,000 is taxed at 10% and income between $11,001 and $44,725 is taxed at 12%. So, if you made $25,000 last year, $11,000 will be taxed at 10% and $14,000 will be taxed at 12%. This is known as a progressive tax system. If your return shows that you paid more in taxes than you owe, you will receive a refund. If you paid less than you owe, you will receive a bill for the difference.
How to know if you need to file a tax return
Not everyone is required to file a federal tax return. If you did not have any income in 2022, you generally won't need to file a tax return in 2023. If you did earn money in 2022 — but made less than $12,950 — you may not be required to file a return, depending on additional factors (via H&R Block). These factors include whether you would be filing as single or jointly with a spouse, whether you have children, and whether you'd be claiming any deductions or credits.
If you're a self-employed freelancer or business owner and made less than $400 (after expenses) from your side hustle or business, you may not need to file a federal tax return. If you made more than $400 from self-employment, you are required to file a return. When it comes to state tax returns, requirements for filing vary from state to state. Try visiting your state's government website for current guidelines.
How and when to file your tax return
Once you've determined that you're required to file a 2022 tax return, the next logical questions are how and when to file. Before you can file a return, you need proof of your income and your tax withholdings. If you worked as an employee, your employer(s) should provide you with a W-2 form that states the total of your wages, tips, bonuses, and taxes withheld. If you're a freelancer, you should receive a 1099 from each client who paid you. Since taxes are not withheld from 1099 clients, freelancers should be paying quarterly estimated tax payments throughout the year to avoid owing a large amount at the end of the tax year (via the IRS).
The deadline for filing a 2022 federal return is April 18, 2023. If you don't feel confident that you'll be able to gather your documentation and file your return by this date, you may wish to file for an extension. Extensions also need to be filed by April 18 and will not necessarily prevent penalties from being applied to any money you owe the IRS.
When to contact a tax professional
If you made less than $73,001 in 2022, you are eligible to e-file your federal taxes for free using one of the IRS-approved online software options. However, filing on your own isn't always the smartest option. If you are unmarried, childless, worked for a single employer, and didn't buy any new property in 2022, e-filing your own taxes for free is probably a low-risk, efficient, and affordable way to go.
For those who earned money from self-employment, bought a home or investment property, had a child, or plan to claim deductions or credits, it is typically worth the fee to work with a tax professional. Miscalculations in the amount that you owe — if you owe — can lead to very costly penalties. A tax professional will ensure that all calculations are correct and that all deductions and potential refunds have been maximized. In all but the simplest of cases, spending more on a professional is typically worth even just the peace of mind of knowing your tax return has been handled with the utmost care.