Ten-Minute Tax Preparation Guide: Getting Ready for Your First Tax Return

Up until now, you've had a free ride. Your parents have been the ones dealing with the IRS. If you've made enough to owe taxes, or if you've had taxes withheld that you want refunded, then you must file a tax return. Your folks might help you, but you are the one legally responsible to do it. This is a quick guide to what you need to know to make out your tax return. I am not a tax professional, although I have been making out my tax returns for more than 30 years. The only time I paid to have them done was the first year after we bought our house because I was nervous about the house mortgage deduction. It cost $176 and I could have bought Turbo Tax or Tax Cut software for a fraction of the amount.

This article presumes that you have earnings from a job, and perhaps a little interest from a savings account. It is intended to help the usual beginner to the tax return to understand the jargon and important information about the tax return you must make out and the taxes you must pay. I will not address the small numbers of young people that have more complicated finances. I will leave that to the experts, which I am not.

So let's start out with the basic terminology. You know that paycheck you get every week? The pay stub will show you what you made and what your deductions were. That is the tax money (and maybe insurance or something) that is taken out of your pay. There are four tax-related deductions that you should be familiar with. Social security, Medicare, federal withholding, and state withholding.

At the end of the year, before January 30^th, your employer must send you a W-2 form, which is a legal form telling you how much you made and how much was taken out for taxes. Each employer you have must send you a W-2 form. If you have moved, you need to make sure that any former employer has your correct address so that you can receive your W-2 form in January. You NEED this to make out your tax return. Put them where you will find them when they come in the mail. Call your employers if you don't get them by January 30^th.

Social Security and Medicare are called FICA taxes, which stands for "Federal Insurance Contributions Act". Currently, this is a fixed percent that is taken from your pay, 6.2% social security, 1.45% for medicare, or a total of 7.65%. Occasionally on your stub, the two FICA taxes are added together and listed just as FICA. Your employer must match this tax, too. So if you have 20 bucks or so taken out of your pay for FICA taxes, your employer (say Burger King) sends that to the government together with another 20 bucks that Burger King must pay. There is a maximum amount of Social Security tax you need to pay each year, but you probably don't have to worry about that.

Withholding for federal income tax and state income tax is basically a questimate about how much you need to pay for your income tax. The information you gave on the W-4 form you made out on your first day of work, is what is used to determine how much to withhold. This is a different thing than your end-of-the-year W-2 form. When you make out your income tax form, you will figure out how much tax you actually owe for the year. Then you will add up how much you already paid which was the withholding on your pay stub. If you paid in more than the taxes, glory be!! because you are getting a tax refund check. If you did not pay in enough to cover your taxes, Dang-nation!!, then you need to send the IRS a check. Not nearly as much fun.

The state income tax withholding is different for the various states. There are six states with no personal income tax. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. The states of New Hampshire and Tennessee has a limited income tax on dividends and interest income. Every place else in the USA, you must make out a state tax return as well. I have found the state forms can be a little trickier that the federal ones. Make out the federal tax forms first, then have them in front of you to refer to while making out the state return.

The deadline to mail your tax return is April 15^th. If you are getting a refund, get the return in as soon as possible. The earlier you send it, the quicker you will get the check. Even if you owe, you should make out your tax return early so you have time to plan how to pay it. I'm usually sitting at the kitchen table as soon as all my W-2 forms are in. I make them out in pencil, then copy to a fresh copy in pen. Leave the final copy until the next day to review for errors. Make sure the right places are checked off, and use the calculator to double-check the math. Then I drive down to Staples and make photocopies of everything before I mail them out. Mail from the post office, and ask them to hand stamp the date.

Disclaimer: I am not a tax professional and the information should be taken with a pound of salt.

Good luck, and have fun. Get a tax software program if you want. But try it on the paper forms first. It's a great way to really understand this important life skill.