Smart TaxesSmart Taxes

Advice for novice tax filers

20-somethings can get free or inexpensive help with returns and helpful fact sheets from the IRS. Watch for essential documents that come by mail.

By MSN Money Partner Feb 22, 2012 10:58AM

This post is by Rachel Louise Ensign of The Wall Street Journal.

 

Tax season is unnerving for most people -- and it can be especially so for 20-somethings who have little or no experience with the process.

 

Though young adults generally have relatively simple returns, they're prone to making big mistakes that can cost them. But help is available from tax preparers and tax-preparation software -- often free or for a small fee -- though experts say they come with limitations.

 

First thing, novice tax filers need to understand the basics of the tax system, says G. Scott Haislet, a certified public accountant and tax attorney in Lafayette, Calif. He suggests starting with Internal Revenue Service Publication 17, the 2011 tax guide for individuals, and the instructions to Form 1040.

 

You're essentially filing a report of all taxable income for the year, along with deductions, credits and other breaks you may be entitled to claim. (Some of the trickiest questions involve figuring out what's taxable and what isn't. When in doubt, check with a reliable tax pro.) Most taxpayers qualify for a federal income-tax refund because the amount of taxes they paid for the prior year exceeded what they actually owed. (Post continues after video.)

You'll need documentation of your income and anything that qualifies for a deduction, which reduces your taxable income, or a credit, which reduces your tax burden. These documents, typically sent via mail, are often missed by young filers used to doing everything electronically, says Elaine Smith, a master tax adviser at H&R Block.

 

Make sure your bank, employer and student-loan servicer have your current address.

 

Young people tend to switch jobs within a year or hold a few part-time gigs at once. So make sure you have either a W-2 or 1099 form from each employer.

 

If you earned more than $10 in interest from a savings account or certificate of deposit, you will receive a 1099-INT form from your bank.

 

When filing federal returns, many younger workers qualify for the easiest and free options. (Many services charge extra to file a state return.)

 

If your adjusted gross income (earnings minus certain deductions) is below $57,000, you can file your federal return electronically for free under the IRS' Free File program, using software from tax-preparation services like TurboTax and H&R Block. (Additional income and residency restrictions apply.) H&R Block also offers free in-store tax-prep services for people filing a 1040EZ form -- those who have less than $100,000 in taxable income.

 

People earning more than $57,000 can still use some of the features of Free File. In addition, some program providers, including TurboTax, offer free or cheap preparation through their sites, though there may be income limits. But you'll need to have a relatively simple return to be eligible.

 

Younger workers typically don't have enough deductions -- say, mortgage interest -- to itemize, so they take the standard deduction. For 2011, the standard deduction amount is $5,800 for singles and married people filing separately; it's $11,600 for married couples filing joint returns.

 

But even those taking the standard deduction can take advantage of some additional deductions and credits, though they'll need to file a 1040 form, not 1040EZ.

 

You can deduct up to $2,500 in student-loan interest. There are also tax breaks for both graduate and undergraduate students, but they can be complex. For details, go to the IRS site and type "tax benefits for education" in the search box. Also see IRS Publication 970.

 

Secondary and elementary educators can deduct up to $250 of school supplies they purchased out-of-pocket. You must have worked at least 900 hours in a school year and you'll need receipts. See IRS Topic 458 for more information.

 

More from The Wall Street Journal and MSN Money:

 

VIDEO ON MSN MONEY

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.