SoFi

Looking to start your own business? You’re not alone. Some 71% of Gen Z and millennials dream of being their own boss, according to a 2024 JustWorks/Harris Poll survey.

While launching your own business allows you plenty of professional freedom, the costs of setting up a business can be expensive. As you’re creating your business plan, one question you’ll likely face early on is, how much does it cost to start a business?

The average small business owner spends around $40,000 in their first full year. But that amount can vary significantly based on a number of factors, including the size, type, and location of the business.

Let’s take a closer look at the startup costs of different types of businesses and common ways to cover the expenses.

Typical Small Business Startup Costs

The adage is true: You have to spend money to make money. And unfortunately, some of the biggest business costs can come during the startup phase, when you are defining your business goals, finding a location, purchasing domain names, and generally investing in the infrastructure of your new company.

In order to make sure your business is on firm financial footing, you’ll need more than just a business checking account and a small business credit card. What’s important is to estimate your small business startup costs in advance so that you have a good understanding of what you’ll need and why. Here are some common ones to keep in mind:

Payroll

Many small businesses start out as a company of one. But if you’re planning on having employees, salary will likely be one of the biggest costs you’ll face. After all, offering an attractive pay and benefits package can help you recruit and retain top talent.

In addition to wages, you may also want to budget for other payroll costs, such as overtime, vacation pay, bonuses, commissions, and benefits.

Office Space

No matter what your business is, you’ll need somewhere to work. Are you leasing a storefront, or will you buy a membership to a coworking space or startup incubator? Even if you’re planning to work from home, you’ll want to consider whether your new business will increase your internet bills.

And don’t forget about the supplies you’ll need to do the work. Depending on your business, this could include computers, phones, chairs and desks, paper supplies, or filing cabinets.

Recommended: Best Cities to Start a Business in the U.S.

Inventory

How much it costs to start a company varies a lot, and one major factor in that variance is inventory. If you’re starting a business that sells products, you’ll need to have some inventory ready to go. Calculating stock as part of your startup costs helps ensure that you can buy your product in advance so that you’re ready to serve customers from day one.

Licenses, Permits, and Insurance

Some businesses, especially storefronts and restaurants, require more legal legwork than others.

For example, if you’re starting a native-plants landscaping business, will you need a permit? If you’re opening a new bar, will you have to get a liquor license? Licenses and permits vary by city and state, but most require an application fee.

Likewise, your new business may need one or more insurance policies to protect you in case of future litigation, so be sure to factor in the cost of monthly premiums.

And don’t forget about the costs associated with registering your business. Whether you plan to set up shop as a corporation, limited liability corporation or other business entity, you’ll often need to pay a nominal fee. The amount will depend on the state where you operate.

And if you plan on enlisting the help of a lawyer, accountant, or tax professional to get your business up and running, add those potential costs to your budget as well.

Advertising

Getting the word out about your new business is one of the most important things you can do to ensure that your business starts off strong. Whether you want to advertise on social media or rent a billboard, your startup costs should reflect money you plan to put toward taking out ads for your business.

Technology and Software

No matter what kind of business you have, technology is likely to play a key role. If you’re creating a product, you’ll probably need equipment to make it, but also software to track inventory, payment processing tools, and possibly workforce management and payroll programs. Internet startups are reliant on the e-commerce software they’re using to sell their products and services. And retail and restaurants generally need payment processing tools, as well as software to manage scheduling and payroll, among other things.

As you’re planning, consider what tech you’ll need to manage your operation. A realistic budget will include costs for setting up and maintaining your technology systems.

If there’s a major piece of tech or manufacturing equipment you need to run your business, you may be able to use equipment financing. This kind of funding can be easier for new companies to get since the equipment itself acts as collateral for the loan.

Professional Services

As mentioned earlier, from time to time, you may need specialized professional help for various tasks associated with your business. In many of these cases, you may want to hire someone with expertise on a project basis rather than as a full-time employee.

For example, you may want to use an accountant for bookkeeping and tax preparation; a lawyer when you need to initiate or approve a contract; or an IT expert to help with maintaining computer systems and cybersecurity. Depending on your company’s growth, you may even need to hire a human resources specialist to help you with hiring.

As you look at your business plan, think about what kinds of professional services you might need at various points in your company’s progress and add those costs to your budget.

Utilities and Operational Costs

Whether your business is in your home or in a dedicated building, you’ll need to consider the additional costs of supporting your office and operations. These may include utilities such as electricity, water and sewer charges, gas, heat, trash pickup, and internet access. If you’re working solo from home, you may not be spending much extra on these, but if you’re starting up a restaurant, for instance, these costs could be significant.

Unexpected Expenses and Emergency Funds

While you can’t expect the unexpected, you can prepare. Generally, it can be a good idea for small businesses to have between three and six months worth of their expenses set aside. That way, they’ll be able to cover costs if they hit a lull or experience equipment breakdowns. You may also find this fund helpful if, for instance, you need to replace a major piece of equipment, like a delivery truck.

Coming up with this reserve may be daunting, but you can build it up over time. Having a business line of credit may also help access funds you can draw on when you have an emergency.

Differences in Startup Costs Based on Industry

The actual cost of starting a small business can vary by business and industry. Here’s what you might be looking at if you want to start one of these common types of small businesses.

Online Business Startup Costs

As with brick-and-mortar stores, the cost of doing business online varies depending on the type of business you have. But in general, you’ll need to budget for things like:

•  Web hosting service and domain name

•  Web design and optimization

•  E-commerce software

•  Payment processing

•  Content creation and social media

If you’re selling products, you’ll need to invest in inventory and shipping. If you’re providing services, you may need to hire employees. All of these costs can be significant.

However, one benefit of starting your small business online is that you may be able to keep other costs low. For example, if you can conduct business from home, you may not need to rent office space, which can be a major savings. If you’re able to do the work without purchasing inventory or hiring employees, the startup costs can be even lower.

Average startup cost: $2,000 to $20,000 or more (depending on your business)

Storefront Startup Costs

If your business idea requires a physical space, your startup costs might range from $50,000 to $1 million, depending on how large a store you’re planning and what the stock will be. A medium-sized clothing store or boutique, for instance, might cost between $50,000 and $150,000.

Although $150,000 might seem like a daunting number, remember that many smaller, independently owned stores began with a much smaller budget.

Average medium-sized retail startup cost: $80,000-$150,000

Restaurant Startup Costs

If you’re planning to start earning money by selling your grandma’s famous bánh mì, you could be looking at startup costs of anywhere from $30,000 to $100,000 for a used food truck or cart to up to $2 million to buy a franchise restaurant. Typically, costs for small restaurants, including coffee shops, fall somewhere in the $275,000 to $425,000 range.

Average startup cost: $375,000

Recommended: 15 Types of Business Loans to Consider

How to Finance Your Startup Business

Many people who want to start a business are overwhelmed by the initial costs, but there are several ways to fund your passion project.

Friends and Family

Perhaps one of the most common ways to raise money for your small business is to ask friends and family to invest in you.

Friends and family loans can be ideal for financing a new small business because you can negotiate low-interest rates, set up flexible pay-back schedules, and avoid bank fees. Of course, borrowing money from friends and family can quickly become complicated by family drama, so make sure to agree on conditions before taking out a loan from a relative.

Outside Investors

When we’re discussing startup companies, we frequently hear about so-called “angel investors” sweeping in to fully fund new businesses. But there are other practical ways to fund your small business with outside investors.

Some small businesses use crowdfunding platforms to find investors who each contribute a small amount, and others use startup funding networks to find investors looking to fund their specific type of business.

Outside investors will want to know that your business is likely to succeed, so you’ll need a solid business plan to land outside funders.

Personal Savings and Investments

Most people end up covering some of their small business startup costs out of their own personal savings. Self-funding your new business venture can be the most convenient option. After all, if you’re your own funder, you don’t have to worry about family drama or picky investors. And putting your own money on the line can be an extra motivation to make sure that your business is set up to succeed.

Of course, it can seem overwhelming to save up enough money to fund your small business. Luckily, there are simple strategies to effectively manage your money.

Business Loans

If you’re looking to purchase equipment, buy inventory, or pay for other business expenses, a business loan might make sense for you.

There are various types of small business loans available, each with different rates and repayment terms.

Note that in some cases, lenders may be reluctant to give loans to a brand-new business because they want to see at least a year of revenue. You might need to put up some type of collateral to qualify for funding. Or it may sometimes be easier to qualify for startup business loans, which are designed specifically for younger companies.

When you’re considering a loan, a small business loan calculator can be useful to help you estimate what your monthly costs might be, as well as the full costs over the life of the loan.

You may be able to get a Small Business Administration (SBA) loan. SBA loans are partially backed by the government and often come with more advantageous terms than other loans, though they may require more paperwork upfront.

Using an SBA loan calculator can help you understand what the monthly costs of an SBA loan would be.

Recommended: Business Term Loans: Everything You Need to Know

Personal Loans

A personal loan can be used for just about any purpose, which can make it attractive for entrepreneurs who want to turn their passion project into a reality. These loans are usually unsecured, which means they’re not backed by collateral, such as a home, car, or bank account balance.

Personal loan amounts vary. However, some lenders offer personal loans for as much as $100,000. Most personal loans have shorter repayment terms, though the length of a loan can vary from a few months to several years.

While there’s a great deal of latitude in terms of how you use the funds, you might need to get your lender’s approval first if you intend on using the money directly for your business.

Recommended: How to Get a Small Business Loan in 6 Steps

The Takeaway

Going into business for yourself can be personally and professionally fulfilling. But it can also be expensive, especially if you’re starting from scratch. Estimating your startup costs early on can help ensure you’re on solid financial ground from the get-go. Labor, office space, and equipment are among the biggest expenses facing many entrepreneurs, but there are also smaller fees and charges you’ll likely need to consider.

Fortunately, small business owners have no shortage of options when it comes to covering startup costs. Dipping into personal savings and asking friends and family to invest are popular choices. Taking out a business loan or personal loan is another way to help finance a new business. The money can be used for a variety of purposes, and that flexibility can be especially useful when you’re just starting out.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What are the average startup costs for a small business?

Startup costs can vary significantly based on factors like the company’s type, industry, and location, but on average, a typical small business owner spends around $40,000 in the first year.

Can I start a business with no money?

It is possible to start a business without money, though it depends on the kind of business you have in mind. Some service-based businesses, such as pet care or being a virtual personal assistant, often don’t require money to start, and you may also not need funds to start selling hand-crafted goods. Dropshipping could be another option.

What business has the lowest startup cost?

Some of the businesses with the lowest startup costs are service-based companies that rely on skills you already have. For example, tutoring or freelance editing businesses can be relatively inexpensive to set up.

How long does it take for a business to become profitable?

You may see online that startups on average take as long as three to five years to become profitable. Bear in mind, however, that the amount of time it takes a business to achieve profitability can vary enormously, and low-overhead companies may be able to reduce that time.

What are the hidden costs of starting a business?

Costs that entrepreneurs may forget to take into account when they’re starting up a business can include utilities, office supplies, WiFi, and printing and mail charges.

Photo credit: iStock/Wavebreakmedia

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q425-102

Starting a new business requires a good idea, customers who want your product or service, and money to get you off the ground. A personal loan to start a business can be one option for funding your business, especially if you don’t yet qualify for a small business loan.

Let’s walk through the difference between personal loans and business loans, the advantages and disadvantages of using a personal loan for business, and some alternative options to explore.

What Is a Personal Business Loan?

Personal loans for business are offered by some banks, credit unions, and online lenders. While many loans will specify what you can spend the money on — a mortgage must be used to buy a house, for example — the sum you receive from a personal loan can be used in several ways. That said, it’s important to confirm with your lender whether its personal loans can be used for business expenses, as some lenders do not allow this.

Your personal loan interest rate is based on various financial factors, including your financial history, income, and credit score. Generally, the higher a person’s credit score, the more likely they are to receive a personal loan with favorable terms and interest rates. Applicants with lower credit scores may have more difficulty qualifying for low interest rates. Lenders tend to see them as at greater risk of defaulting on their payments. To offset that risk, they might charge a higher interest rate.

Personal Business Loans vs Small Business Loans

Borrowing money to pay for business expenses is a decision that takes some consideration. There are different reasons you might want or need a business loan, many lenders to choose from, and different lending options to compare. Some things to think about if choosing between a personal loan for business or a small business loan include:

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

Benefits of a Personal Loan for Business

Taking out personal loans for business purposes can offer several advantages over other financing options.

Ease of Qualification

If your business is brand new, it can be tricky to get a startup business loan and may be easier to qualify for a personal loan. Banks offer personal business loans based on your personal income and credit score.

By contrast, you’ll be asked for a lot of information during the business loan application process, including your personal and business credit score, annual business revenue and monthly profits, and your length of time in business. The longer your business has existed, the more likely you are to have a record of revenue and profit — and the more likely you are to qualify.

Faster Funding

The length of time it takes to get approved for a personal loan and receive funding will vary by lender. Online lenders are typically faster than traditional banks and credit unions. You are likely to receive funding within seven business days.

By contrast, the process for a business loan can be much slower. For example, it can take 30 to 90 days to receive funding from a Small Business Administration (SBA) loan.

Potential for Low Interest Rates

If you have strong credit, personal loans can have lower annual percentage rates (APRs) than other financing products — such as credit cards. While it can be useful to have a business credit card, you’ll pay a relatively high rate if you carry a balance from month to month.

Small business credit cards may also have penalties and fees that personal loans may not have. These often include penalty APRs that go into effect if you make a late payment, over-limit fees if you spend more than your credit limit, annual fees, and more.

Flexibility and Versatility

Personal loans have few restrictions on how you’re allowed to use the money you borrow. You can use them for anything from debt consolidation to home repairs to a veterinary bill.

Disadvantages of a Personal Loan for Business

Despite the potential advantages of using a personal loan to help you start your business, there are drawbacks.

Some Lenders Don’t Allow Personal Loans for Business

Some lenders place restrictions on how personal loans can be used. It’s wise to be transparent about your intention to use the personal loan for business expenses and confirm if the lender permits it.

In some cases, it may not be. However, it’s far better to be honest about how you plan to use a loan than risk breaching the loan agreement. If you end up using a loan in a prohibited way, your lender could force you to immediately repay the full amount of the loan with interest.

Lower Loan Amount Limits

Personal loans generally offer borrowing limits as low as $1,000. They can go as high as $100,000 for larger personal loans. For small businesses, this might be plenty. But if you own a larger business that needs more money, you might benefit more from a loan specifically designed to meet business financial needs. Small business loans generally have lower interest than personal loans.

Shorter Repayment Terms

Lending periods for personal loans vary. Typically, you can find loans with term lengths of 12 months to five years. Compared to some small business loans, this is a relatively short period. Consider that for SBA loans, maximum terms can be as much as 25 years for real estate, 10 years for equipment, and 10 years for working capital or inventory.

Potential to Affect Personal Credit Score and Assets

If you take out a personal loan and can’t make monthly payments, you are putting your personal credit at risk. Missed payments may harm your credit score, which can make it more difficult for you to access funding in the future.

Recommended: What Is Considered a Bad Credit Score?

Fewer Tax Deduction Opportunities

Generally, the interest you pay on a personal loan is not tax deductible, unlike the interest paid on business loans. However, there’s an exception if you use the proceeds of a personal loan for business purposes.

However, this can get a bit tricky, as you may only deduct interest on the portion of the loan used for business expenses. So if you use any of that money to remodel the primary bathroom in your home, for example, interest on that portion can’t be deducted.

How to Get a Personal Loan for Business

Securing a personal loan for business purposes involves several key steps. The process looks like this:

1.    Assess your finances: Begin by looking at your personal credit score, income, and overall financial health. This will give you insight into the likelihood of qualifying for a personal loan and the interest rates you might get.

2.    Choose a lender: Look for banks, credit unions, and online lenders that offer personal loans suitable for business purposes. Make sure they allow you to use personal loan funds for business expenses. Compare interest rates, loan terms, and fees to find the best lender for your needs.

3.    Prepare your documents: Gather documents like proof of income, tax returns, identification, and any business-related information required for your application.

4.    Submit your application: Complete the loan application process with your chosen lender. Be honest about your intention to use the loan for business expenses. This transparency helps avoid potential issues in the future.

5.    Review loan terms: Once your application is approved, carefully review the loan terms, including the interest rate, repayment schedule, and any associated fees. If everything looks good to you, accept the loan terms to move forward with the funding process.

What to Consider Before Applying for a Personal Loan for Business

When analyzing the benefits and risks of this approach, consider these factors.

•   Your personal creditworthiness: Using a personal loan for business mixes your individual finances with the company’s risk. Think about the effects this move might have on your personal credit score and future loans.

•   Your business revenues: You’ll want to be sure your business will bring in enough money to cover your monthly personal loan payments. Run the numbers to be sure that paying the costs for this loan won’t force you to skimp on other needed business expenditures.

•   The loan’s true cost: Beyond the loan’s interest rate, lenders may charge fees for loan origination, late payments, loan processing, or account maintenance.

•   Timing: Funding for a personal loan may be processed faster than for a business loan. That’s an advantage over SBA loans, which can take up to three months to come through, possibly costing you a current opportunity.

•   Usage restrictions: Some personal loan agreements forbid using funds for business, so double check that your prospective lender permits it.

•   Repayment details: If you do get the green light, you may want to have on hand a solid business plan (showing revenue model and expenses, for example) to show how the loan will be repaid.

There are funding alternatives that could cost you less or give you added flexibility. Those are detailed in the next section.

Alternatives to Personal Business Loans

Personal loans might not be ideal for everyone and aren’t the only funding option for your small business. It may be worth considering small business loans or other types of business loans as alternatives.

Small Business Loans

Small business loans are offered through online lenders, banks, and credit unions. There are various options available, each designed for specific purposes. For example, a working capital loan is designed to help you finance the day-to-day operations of your business. Equipment financing can help you replace aging technology and buy new tools and machinery.

SBA loans are guaranteed by the Small Business Administration, whose aim is to help small businesses start and grow. If you aren’t able to make your payments, the SBA will step in and cover up to 85% of the default loss. By reducing risk in this way, the organization helps businesses get easier access to capital.

Shopping around for the best small business loan rates is a good way to compare lenders and find the one that works best for your unique financial needs.

Business Lines of Credit

A business line of credit is revolving credit, similar to a credit card. You have a set credit limit and only pay interest on the amount you’re currently borrowing, making it a more economical option than a term loan for some business owners. As you repay the funds, they are available to borrow again.

Another advantage to a line of credit over a term loan is the ability to use a check to pay vendors who do not accept credit cards.

Business Credit Cards

Business credit cards can be useful for separating personal and business expenses. They also usually have higher credit limits than personal credit cards, which gives you more flexibility to make larger business purchases. Plus, they may offer rewards, perks, and bonuses. It’s important to keep in mind, however, that credit cards tend to have higher interest rates than other types of business financing.

Recommended: Can You Get a Business Credit Card Before You Open Your Business?

Merchant Cash Advance

A merchant cash advance (MCA) is an alternative form of financing for businesses that get revenue through credit card sales. With an MCA, a business can borrow a lump sum of money and repay the lender with a percentage of future credit card transactions. The repayment amount is larger than the advance, since the lender charges a fee. In some cases, MCA fees can significantly exceed interest rates on other types of business loans.

The Takeaway

Can you use a personal loan to start a business? Perhaps. Taking out a personal loan may be one way to fund your small business needs. However, some lenders do not allow a personal loan to be used for business purposes. It’s a good idea to explore alternatives, such as a small business loan or line of credit.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Can a personal loan be used for business?

Yes, you can use personal loans for business if the lender allows it. It’s important to check with the lender to ensure there are no restrictions on using the loan for business expenses.

Can I write off a personal loan if used for my business?

You can typically write off the interest on a personal loan used for business purposes, but only the portion directly related to business expenses. Personal loan principal repayments are not tax-deductible.

Does the SBA offer personal loans?

No, the Small Business Administration (SBA) does not offer personal loans. The SBA provides various loan programs designed specifically to support small businesses, such as SBA 7(a) loans and SBA 504 loans.

What are the risks of using a personal loan for business purposes?

Funding your business with a personal loan can present a number of risks. The overall risk is that such a loan puts your individual creditworthiness on the line, as personal loans always require a personal guarantee. This means:

•   Any missed payments could hurt your individual credit history.

•   Even if you pay on time, you’d miss the opportunity to build your business credit score.

•   Defaulting on a personal loan could cause lenders to take legal action, meaning you’d probably have to pay for a lawyer to represent you.

•   Negative consequences from a lawsuit could include a lien on your home or garnishment of your wages.

Can startups qualify for a personal loan for business?

Generally, the answer is no. Many lenders disallow the business use of a personal loan, for one thing. For another, lenders ordinarily approve or deny loans based on the borrower’s ability to manage repayments — and given the high rate of startup failure (roughly 20% in the first year), both personal and business loans to new entrepreneurs are often seen as too risky.

Photo credit: iStock/fizkes

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q425-023

Filing taxes as a beginner can be intimidating, but once you’ve done it a couple of times, it can get easier. You’ll know the process and just which documents and numbers you’ll need to complete your forms. That applies whether you file on your own or work with a tax preparer.

So, here’s a great starting point for learning how to file taxes when you aren’t so familiar with the procedure.

What Do You Need to File Your Taxes?

If this is your first time filing, it’s a good idea to gather everything you need before you sit down at a computer or with an accountant. Here’s what you’ll need:

•   Social Security number: If you aren’t sure, ask your parents or legal guardians. Once you start filing taxes, it’s a good idea for you to keep your Social Security card and other important documents, like your birth certificate, instead of leaving them at your parents’ house.

•   Wage and income information: For most first-time filers, this will simply be a W-2 form from your employer.

◦   If you did any freelance or contacted work, you should receive 1099 forms from each entity that paid you.

◦   If you have a bank account or investments that earned interest, and you will have received forms for those, typically a 1099-INT or 1099-DIV.

•   Documentation for tax credits and deductions: When doing your taxes at a young age, it is unlikely that you will qualify for many tax credits and deductions, if any at all. And because the standard deduction has increased significantly over the years, you will likely take the standard deduction (instead of itemized), for which you won’t need any documentation.

◦   If you’re a student, also look for the form 1098-T from your school, which details tuition payments you have made and funds received (such as grants), to help you identify whether you are eligible for any deductions. In addition, be aware that some college scholarships or grants may be considered taxable income.

•   Bank account info: If you expect to receive a refund and want the money electronically deposited into your bank account, you need to have your account number and routing number at the ready. If you owe money, you can pay from your bank account, a credit or debit card, or a paper check or money order.

The IRS also advises checking with parents before filing to see if they are claiming you as a dependent.

Where Can You Fill Out Your Taxes?

When learning how to do taxes for the first time, one big question is exactly where to get this done. The IRS allows you to fill out your taxes in several ways, either on paper or electronically.

Filing Online

You can file online directly through the IRS website with a tool called IRS Free File. And if your adjusted gross income (AGI) is $84,000 or less, the IRS currently offers free guided tax preparation software. Even if you brought in more than $84,000, the IRS makes its tax forms available for e-file free of charge. Check the IRS website for updates regarding this program for each calendar year.

However, navigating tax forms can be overwhelming. Purchased tax software comes with educational resources and interactive platforms that prompt you for the correct information. Using tax software could help filers avoid math errors and find deductions and tax credits they may not have otherwise known about.

As a filer, it’s up to you to research popular tax software solutions (such as TurboTax, H&R Block, TaxSlayer, and TaxAct) and find the option that suits you best. Prices can range from about $40 to $125 or more and up.

Filing Manually

The old method of filing by hand with pen and paper is still possible, though these returns may take longer to process.

Because pen and paper can potentially lead to errors, it is a good idea for first-time and veteran filers to utilize free or purchased online software or even a tax professional.

Recommended: How Long Does It Take for the IRS to Mail Tax Refund Checks?

Filing With a Professional

Tax professionals can file manually and online, but the IRS encourages all accountants to utilize the online option. For a speedy return and fewer errors, most tax professionals will likely file electronically for you.

As a first-time filer, your tax situation will not likely be complex enough to warrant a tax professional. But as your finances become more complicated — with investments, real estate, small business ownership, and more — a tax accountant may make sense.

Another benefit of working with an accountant can be their training and knowledge. A professional may be able to help you find (legal) ways to pay less taxes.

How Do You Pay Your Taxes?

When filing taxes for the first time, there’s a good chance you will not owe anything. In the event that you do owe the government money, however, you have multiple options for paying your taxes:

•   IRS Direct Pay: The amount owed will be debited from a checking or savings account.

•   Credit or debit card: You can pay your outstanding tax balance with a debit or credit card online. This is a nice option if you have cash back rewards, but you will typically be paying a high interest rate if you carry a balance.

•   Check or money order: The IRS still accepts checks in the mail, as well as money orders.

•   Installment agreement: If you cannot afford your tax bill all at once, you can use the IRS Online Payment Agreement tool to apply for an installment plan.

Filing Tips for First-Timers

Feeling nervous about doing taxes for the first time? Here are some tips for making the experience easier; consider them steps for how beginners can file taxes.

1. Watch Your Income

To determine if you need to file, you can watch your income throughout the year. Once you pass a certain threshold, you will be required to file. This filing threshold can vary depending on your situation, so you’ll need to check out the IRS filing requirements .

If you know that you will make enough money to pay taxes, it’s a good idea to ensure your employer is withholding the proper amount of money from each paycheck for federal, state, city, and even school district taxes. If you believe your employer is not withholding enough (or is withholding too much), the IRS recommends filling out a Form W-4 to change your withholding.

Recommended: What Tax Bracket Am I In?

2. Gather All Necessary Documents

Tax documents will start arriving in the mail or digitally early in the new year, typically near the end of January or in early February. As these documents come in, it’s wise to store them in a safe place, like a manila folder in a fire safe or an encrypted folder on your computer. When it’s time to file, you’ll be able to access all your tax forms quickly and easily, rather than hunting all over for them. Being organized this way can also help you be aware of any missing tax documents.

If your tax situation is more complex — for instance, if you are self-employed, receive student loans, or make charitable donations — it’s a good idea to hold on to relevant forms throughout the year. Self-employed individuals, for example, may want to save receipts for business expenses incurred throughout the year. These can help you claim tax deductions for freelancers.

3. Learn About Potential Credits

When filing taxes for the first time, you may not be eligible for many tax credits. Tax preparation software, a tax professional, or even the IRS’s guided filing tool may be able to help you find out which credits you qualify for.

Before filing on your own, it could be wise to review the IRS list of tax credits for individuals to see if any apply to you.

4. Understand Potential Deductions

Similarly, most first-time filers will want to take the standard deduction instead of itemizing because it may offer the larger discount. However, the IRS does offer itemized deductions for student loan interest and for work expenses, if you are self-employed.

You can familiarize yourself with IRS deductions, including tax deductions for college students (if that applies) before filing to determine if itemizing deductions is right for you.

5. Hit Your Deadlines

Tax Day in the United States is traditionally April 15, but if that date falls on a Saturday, Sunday, or legal holiday, the tax deadline moves out to the next business day.

If you owe estimated taxes each quarter (say, if you are self-employed), you will need to pay taxes four times a year. Working with a tax accountant may be in your best interest. Members of the Armed Forces may have special rules governing the due date of their taxes.

Individuals can also apply for a tax extension; this extends the due date of filing, but not the due date of payment. That means you might get a six-month extension to file the paperwork, but if you have not paid what you owe by April 15, you could be subject to late penalties.

Do You Need to File Taxes Every Year?

Not everyone is required to file tax returns every year. It all comes down to your unique tax situation and how much you earned. However, if you earn income throughout the year, there is a good chance you will need to file. It’s a good idea to review the IRS filing requirements or speak with an accountant if you are not sure.

Tax Filing Mistakes to Avoid

Working with tax preparation software or an accountant can help avoid some common mistakes when filing taxes, but familiarizing yourself with some of the most common errors can be helpful, no matter how you’re filing:

•   Forgetting about state and city. We often think about federal income taxes, but your city and state (and maybe even school district) could also have their own taxes that you are required to pay.

•   Not filing. Income thresholds can change each year. It’s always a good idea to check whether you are required to file taxes for a given year even if you didn’t have to for the previous year.

•   Not checking with parents. If you are filing taxes for the first time, your parents are likely used to claiming you as a dependent. Talking with them about dependent status before filing could be a smart move.

•   Filing without all your forms. Getting taxes over with early can relieve a lot of stress (and means you can get your tax refund early), but if you have any tax form stragglers, like a 1099, that appear in the mail after you’ve completed your taxes, you might land in trouble with the IRS.

•   Entering in the wrong info. Tax preparation is not something to speed through. Even though e-filing helps avoid simple pen-and-paper mistakes, it’s still possible to incorrectly enter things like your birth date or Social Security number. Slow and steady — with lots of double- and triple-checking — wins the race.

The Takeaway

Filing taxes as a beginner can be intimidating, but if you put some time and organizational effort into the process, it can go smoothly. You’ll also be better prepared for next year’s Tax Day once you’ve filed. Whether you do your own taxes or work with a tax professional, it’s wise to gather the necessary paperwork, understand your potential credits and deductions, and file on time and precisely.

The fastest way to get a tax refund, if you’re due one, is a direct deposit into your bank account. If you’re a first-time filer, it’s wise to have an account ready to receive any funds heading your way.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What happens if you make an error on your taxes?

As soon as you realize you have made a mistake on your taxes, you can amend it with Form 1040-X or by calling the IRS at 800-829-1040. In general, the IRS does not consider mistakes to be tax fraud, though you may end up paying late penalties. If you have intentionally made errors and the IRS catches you, you could be charged with a tax crime.

How much income do I need to make in order to pay taxes?

The amount of income that you need to make to pay taxes can fluctuate each year and depends on your filing status (single; head of household; married, filing jointly; married, filing separately; qualifying widow/widower). For the 2025 tax year, a single filer under 65 needed to make $15,750 or more to file. For the 2026 tax year, a single filer under age 65 needs to make $16,100 or more to file.

What is the deadline for filing taxes?

In general, the tax deadline in the U.S. is April 15. If this date falls on a weekend or legal holiday, the deadline shifts to the next business day. Members of the military may have special rules affecting their deadline, and self-employed individuals typically must pay quarterly estimated taxes throughout the year.

How can I avoid tax scams?

The best way to avoid tax scams is to educate yourself on what they look like. The most common tax scams are email phishing scams and phone scams. Remember that the IRS will never email you requesting personal or financial information nor will the IRS call you and threaten legal action or leave pre-recorded, urgent messages.

Photo credit: iStock/PeopleImages

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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A cardless ATM allows you to withdraw cash from your bank account without using a debit card. While these ATMs may look like regular ATMs and still have a slot to insert a debit card, they have the technology to identify an account holder without a debit card. To get cash without a debit card, you generally need a smartphone, the bank’s app, and a checking account that supports cardless cash.

What Are Cardless and Contactless Withdrawals?

Thanks to technology, you can often withdraw money from an ATM without a debit card and instead use your cell phone. This is good news for those who don’t like to carry around cards or would rather not have to search through their wallets to find the right card when they get to an ATM.

Cardless withdrawal allows you to use an app (an important part of traditional and online banking these days) to get your cash. Cardless ATMs use different types of technology (such as QR codes, NFC, and biometrics) to securely identify an account holder and dispense their cash without the presence of a debit card. Below, take a closer look at how exactly this works.

Recommended: 12 Mobile Banking Features

2 Ways to Get Cash From a How a Cardless ATM

How to do a cardless withdrawal? First, you’ll need an ATM that has cardless access and a bank account that allows cardless cash. Then, you’ll follow these steps.

Method 1: Using Your Banking App and a QR Code

With your phone, you initiate a withdrawal using your bank’s mobile app. There’s variation in how these apps work: The bank may send you a code to plug into the ATM or one that you can scan at the ATM. Either way, you need to press the cardless ATM acceptance mark. You’ll then be prompted to enter a code or scan the QR code on the ATM screen.

Next, you’ll see if any ATM fees are associated with the transaction. Then, you can accept and authenticate the transaction (which may involve using your phone’s biometrics, which are typically, fingerprints, voice recognition, iris scanning, or face recognition). You can also choose to decline and cancel the transaction. If you move ahead, the ATM receives authorization of the transaction and issues the cash you requested — no card needed.

Method 2: Using Your Mobile Wallet (Tap to Pay)

Another option is to use a contactless payment or digital wallet option like Google Pay or Apple Pay. If you opt for this kind of payment, it will likely use near-field communication (NFC) to connect to the terminal. In this situation, you’ll hold your phone close to the ATM so your phone and the ATM can “talk” to each other. You’ll then be able to access the bank account linked to the app.

Recommended: Savings Account Withdrawal Limits

How to Find a Cardless ATM Near You

You can usually find an ATM that’s cardless near you by using the ATM locator via your bank’s app or website. This will typically indicate which are contactless by displaying the contactless/NFC symbol. Another option is to use basic mapping tools and look for an ATM that is identified as contactless.

What Are the Benefits of Using a Cardless ATM?

For sure, there are some upsides to being able to get cash without your debit card. Here are some to consider.

You Don’t Need to Carry Your Wallet

It’s handy to be able to get your cash and conduct other transactions without your debit card. As long as you have your phone, you’re good to go. No need to make a trip back home if you discover when you get to the bank that you left your card at home. Cardless cash also allows you to carry around fewer cards. That can be helpful should you lose your wallet or it gets stolen.

It’s a More Hygienic Way to Bank

Given the concerns about germs that can be transmitted surface to surface, contactless payments (meaning those in which you do not have to insert your card into an ATM ) can be a plus. Less touching of surfaces that have seen a lot of potentially germy fingertips can be a good way to go.

There’s a Lower Risk of Skimming Fraud

You may feel reassured because there’s no chance of card skimming since you’re not swiping your card. What’s more, you may be able to avoid entering your PIN. That’s a plus since you don’t have to worry about hidden cameras or lurkers getting your digits. It can be a good way to add a layer of bank account protection.

Are There Any Downsides to Cardless Withdrawals?

Cardless cash withdrawals also have some downsides. Here’s a closer look.

Not All ATMs Are Equipped With This Technology

Not every ATM has cardless capabilities, and your bank may not have cardless ATMs that are convenient to where you live or work. Before you decide to go the cardless route, you’ll want to investigate what your financial institution offers in terms of cardless ATM access. Also, if you travel frequently, you may not always be able to find a cardless ATM when you need one. While cardless ATMs aren’t rare, they also aren’t everywhere.

Potential for Scams

Your phone will contain additional sensitive information if you go the cardless route. If you lose your phone or it is stolen, that information could be at risk. While there are plenty of safeguards and security measures, like biometric security and two-factor authentication, you’ll want to report a lost or stolen phone to your bank immediately.

Your Smartphone Must Be Compatible

Are you one of those people who stand in long lines for the latest, greatest smartphone release? If you regularly upgrade your phone to the latest model, you’re probably going to do fine with cardless withdrawals. But if you tend to hold onto your phone for a long time, you may need an upgrade that can handle your bank’s app and NFC, when required. Otherwise, your device may not be capable of cardless transactions.

The Takeaway

Cardless withdrawals are another way technology can help simplify your finances. All you need to access the cash in your checking or savings account is a smartphone, your bank’s app, and an ATM — no debit card required. Decide if it’s an important option you’d like to use.

FAQ

Does SoFi offer cardless withdrawals?

At the current time, SoFi does not offer cardless ATM withdrawals. Members need their physical debit card and PIN number to withdraw cash from an ATM.

Can I use Apple Pay or Google Pay at an ATM?

You can typically use Apple Pay and Google Pay at ATMs for cardless cash withdrawals, provided that the terminal is a contactless-enabled ATM. Scan for the contactless symbol, and you can then tap your phone vs. inserting a card, and then enter your PIN.

What if I lost my debit card but need cash?

If you lost your debit card but need cash, first call your bank to report that the card is missing to secure your account and get a replacement. Once you’ve done that, you can use such options as a cardless ATM withdrawal, visiting a bank teller, writing a check to yourself, getting cash back when making a purchase with a digital payment method, or using a service like Western Union to send cash to yourself and then pick it up.

Is it safe to use a contactless ATM?

Using a contactless ATM is typically very safe. The data that is transmitted via near-field communication (NFC) is encrypted, protecting your details. Also, you avoid the risk of unwittingly inserting your card into a skimmer and having your credentials stolen. That said, do stay alert whenever you use an ATM to keep yourself and your finances secure.

Are there withdrawal limits for cardless transactions?

Yes, as with traditional transactions, there are typically withdrawal limits. They are often but not always identical to your standard daily ATM limits, but it’s best to check with your bank to find out. Withdrawal limits can vary by bank, by your account type, and by ATM terminals.

Photo credit: iStock/hsyncoban

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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