Two weeks ago the Treasury Department warned American taxpayers that the 2022 filing season would probably be messy and that many taxpayers could once again experience delayed tax refunds. As daunting as the warning is for regular do-it-yourself filers and tax professionals, it may have first-time filers paralyzed with fear. Bill Smith, National Director for Tax Technical Services at CBIZ-MHM, has some advice to help make filing smoother for individuals who are filing their first (or first in a long time) tax return this season. According to Smith, first-time filers generally fall into one of two categories:
- Young people or emerging adults who either have their first job or are filing for the first time without parental supervision or
- Recently divorced or widowed adults whose partner had always been responsible for filing the return.
Advice for Emerging Adults
If you are filing your first tax return ever, Smith’s single most important piece of advice is one you may be hearing all over the news and social media—file electronically! The IRS has raised the limit on its annual Free File program to $73,000 of adjusted gross income (or AGI). The Free File program lets you prepare and file your federal income tax online using guided tax preparation, at an IRS partner site. To use Free File you must access the partner program through irs.gov. Two of the largest Free File partners in prior years, H&R Block and Intuit’s Turbo Tax, are not participating in the Free File program this year. Of course, you can file electronically using either of those vendors or many others by downloading their software.
Smith’s next piece of advice is to be sure you have all of the forms and information required to prepare your return. Sometimes forms are mailed directly to the taxpayer, so if you’ve moved that can be a problem. Most, however, can be accessed electronically. Check your employer(s), your bank, and your other financial institutions (like Robinhood) for annual tax reporting forms. The simplest returns for first time filers will usually have at least one Form W2 and possibly some Forms 1099 for interest and/or dividends. First-time filers may also have Forms 1099-NEC and/or Form 1099-K if they have worked as an independent contractor or gig worker during the year. Remember, however, that income is reportable whether or not a Form 1099 is received. In other words, taxpayers must report income received from cash jobs as well as those paid by check or by credit card. Other information you will need to ensure your return is filed correctly is your Social Security Number (SSN) and your banking information (for direct deposit of your refund). Mismatched or incorrect SSNs and incorrect bank account numbers almost always make the IRS’ list of most common tax return errors. Chase bank reminds filers that they can find their account and routing information by logging into their bank’s mobile app or website. This guide from Chase shows where to find your account and routing information if you are looking at a paper check.
If you are a young person or college student whose parents may be claiming you as a dependent on their return it is important that you verify that information before electronically filing your return. When entering your basic information in your software, be sure to check the box indicating that another filer will be claiming you as a dependent. What happens if you don’t? It depends on who files first. Usually dependents file first because their returns are simpler. If you file first and don’t check the box, your parents’ return will be rejected by the e-filing system because a return with your SSN has already been filed. Your parents will have to file a paper return in order to claim you as a dependent. They probably will not be pleased. If your parents file first and claim you and then you fail to check the dependent box in your software, your return will be rejected from the e-filing system but it is usually possible to go back into the software, correct the error by checking the box, and then re-submit the return.
Don’t forget to go back and check in your software to ensure that your return has been accepted by the IRS for processing and to save that confirmation information somewhere. Simply sending the return to your software provider does not ensure that it has been accepted by the IRS for processing (and if it hasn’t the IRS “Where’s My Refund?” tool will not work for you). Also, be sure to save a PDF copy of your return rather than depending on being able to log back into the software if you need a copy and be sure you have kept your username and password somewhere that you can access it in the future should you need it.
Smith has these final tips for true first-time filers:
- Be choosy about where you go for tax advice. There’s a lot of bad advice out there, especially on social media.
- Don’t omit anything thinking you can “beat the system.” Even with all of the problems the IRS is currently experiencing, they are still excellent at identifying problematic returns or returns with missing information.
- Don’t change your answers based on the refund tracking feature of your software. Smith likens that to playing a slot machine. If you don’t understand the question, consult the software’s knowledge base, IRS publications, or call the software provider’s support line (if they have one).
You don’t want your return processing (and your refund) to get delayed because it was set aside for manual processing and, according to Smith, “you don’t want to get into that [audit] side of the IRS system.” Underreporting and other problems can negatively affect your credit score.
Advice for the Newly Single
Newly single filers who are filing for the first time in a long time, as opposed to the first time ever may have it a bit easier. Smith recommends starting with last year’s return (which is one of the many reasons saving a print or PDF copy somewhere that is easily accessible is a good idea). Looking at the prior year’s return will often give you an idea of how complex your return is, who prepared the return (DIY or a tax professional), and what information typically gets reported on your return. If you need help, older filers may be able to get help from an AARP tax clinic. Low-income filers may qualify from the IRS’ Volunteer Income Tax Assistance (VITA) program.
If you used a professional return preparer, watch for the preparer’s engagement documents and organizer. The organizer will give you an idea of what types of information were included on your return last year and what you need to be looking for this year. Even if you’ve never used a professional preparer before, it’s OK to decide to use one if you haven’t filed in a while, especially if your return is fairly complex (complex investments, rental or business income, etc.). Just don’t wait too long to start looking for help. The longer you wait the harder it will be to find good quality help, and sometimes it gets more expensive the longer you wait as well.
Smith reminds newly single filers, especially those with more complex returns, that it’s OK to file an extension of time to file if you need some extra time. Filing an extension will not trigger an audit or increase your likelihood of being audited (that is a common myth). Filing an extension will extend your time to file until October 15th, 2022, but it will not extend your time to pay. And don’t avoid filing just because you are afraid you will owe. Failure to file penalties are much higher than the penalties for failing to pay your tax on time.
This year especially all taxpayers are walking a fine line between waiting to ensure they have all of the information necessary for filing and getting caught in a late season rush to file. Do your best to be prepared, have a plan for saving your information, consider if filing an extension would be beneficial to you, and if you don’t have a tax professional and think you may want one, don’t wait to start looking.