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Filing a tax return can be pretty intimidating for anyone, let alone a first-timer. Between the number of forms and the obscure jargon, it’s easy to worry you’re making a critical mistake, missing something important, or leaving money on the table. But the more you learn and understand, the easier it gets. (Knowledge is power, as they say.) And on the bright side, filing taxes means you’ve reached a milestone in your adult life: You’re making money. If this is your first tax season, there are many useful online guides for beginners (including SoFi’s.) And here are five specific things you’ll want to make sure to do: 1. Check if you’re eligible to file for free. If you have a modest income and relatively simple circumstances, you’d probably like to avoid paying a tax preparer. And you may even be able to skip shelling out for tax software. There are two main ways to file electronically — with guided software help — for free:• Use the IRS’s new Direct File option, which is open to people living in these 25 states. You can’t use it if you have income from gig work, a rental property or a business, though, so check here to make sure you’re eligible first.
• Use IRS Free File, which is available to residents of any state, as long as you earned no more than $84,000 in adjusted gross income last year. Choose from one of the IRS’s eight Free File partners using this comparison tool.
2. Watch out for scams. Scammers exploit tax season to try to trick people into giving up money and personal information. Being new to the process makes you especially vulnerable, so beware of:• Threatening calls, emails or texts from scammers impersonating the IRS
• Anyone offering to help you create an IRS online account — they’re after your personal details
• Social media posts about being eligible for fake tax credits
To protect yourself, review the agency’s annual “Dirty Dozen” scam list and remember this rule of thumb: The IRS uses good old-fashioned U.S. mail to make initial contact, and doesn’t email or text without your permission. It’s best to type "IRS.gov" directly into your browser instead of clicking on random links you might find or get sent. And be careful of bad advice circulating on social media. Even if influencers don’t intend to mislead you, misusing forms or filing fraudulent returns can lead to IRS penalties. 3. Check to see if you can claim the Earned Income Tax Credit (EITC). If your income is on the lower side, the EITC could reduce the amount of tax you owe. (Income limits range from $18,591 to $66,819, depending on your household size.) About 20% of eligible taxpayers don’t claim it — presumably because of lack of awareness — even though it’s what’s known as a “refundable” credit, meaning if you wind up owing zero in tax, you’ll get any remaining credit as a refund. Note: Review this list to see if you’re eligible for other tax credits related to college expenses or a Marketplace health insurance plan. 4. Look beyond your W-2(s.) Income doesn’t just come from the standard form your employer provides you, known as the W2. Depending on how much you earn, you may need to report income from a side job, like delivering food or selling crafts on Etsy. Selling NFTs counts too. Your employer, payment app, marketplace or financial institution may send you a Form 1099-K, 1099-MISC or 1099-NEC to reference on your tax return, but even if they don’t, you may still need to report the income. Here’s a full list of taxable income types. 5. If you get a tax refund, use it wisely. The average federal tax refund is over $3,000, and is often the largest single check people receive, according to the IRS. Leaving aside whether you want to aim for a smaller refund next year (we explore that issue here,) if you get a big windfall, make it count. Instead of treating yourself to an indulgence, consider putting all or most of the money toward a financial goal. Starting an IRA, paying down debt, or saving for graduate school not only gives you a greater sense of achievement, but sets a precedent for the future.photo credit: iStock/ilkercelik
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