Filing taxes for the first time can be a daunting task, but being aware of common mistakes can help you navigate the process with ease. From lack of organization to underestimating the complexity of the first year, understanding these pitfalls can save you from costly errors and ensure a smooth tax filing experience.
For most people, tax time is just another part of the year, but for first-time filers, it can be an overwhelming experience. The rules are complex, the forms are unfamiliar, and small misunderstandings can lead to costly mistakes. However, with the right guidance, you can avoid common errors and ensure a smooth process. Kevin Golden, CPA, a partner at James Moore & Co., shares his expertise on the mistakes first-time filers often make and how to avoid them.
First, Know It’s OK To Be Overwhelmed
As an experienced CPA, Golden has one thing he wants all first-time filers to know: Filing your first tax return can absolutely feel overwhelming, and that’s OK. The rules are complex, the forms are unfamiliar, and small misunderstandings can lead to costly mistakes. But with the right guidance, you can avoid these errors and ensure a smooth process.
Mistake No. 1: They’re Not Organized
One of the biggest mistakes first-time filers make is not being organized. Keeping track of everything requires organization, something many first-time filers lack. According to Golden, most of the biggest mistakes filers make, such as failing to report all income, choosing the wrong filing status, and misunderstanding credits versus deductions, stem from poor organization and preparation.
Mistake No. 2: They Underestimate How Complex the First Year Can Be
Golden says many people underestimate how complicated their financial situation can be in their first filing year. They may have multiple income sources, student loans, freelance work, or investment accounts for the first time. Tax terminology like adjusted gross income, taxable income, and credits versus deductions can feel technical. Without prior exposure, it’s difficult to understand how all the pieces fit together.
Mistake No. 3: They Forget To Report Additional Income
Yes, you drove for Uber a few weekends a year, but surely you didn’t make enough to report it, right? This is an all-too-common mentality among first-time filers, who often fail to report income from freelance or gig work. Golden adds that this isn’t the only type of income first-time filers forget. They also miss investment income, such as dividends or capital gains, interest from savings accounts, and online platform earnings.
Mistake No. 4: Assuming You Didn’t Earn Enough To File
After reviewing your finances, you may find your income is below the filing threshold. Before assuming you don’t need to file, Golden suggests taking another look. In some cases, it still makes sense, or is required, to file. Some taxpayers qualify for refundable credits, such as the Earned Income Tax Credit, which can result in a refund even with minimal income.
Mistake No. 5: They Choose the Wrong Filing Status
Golden commonly sees first-time filers choose the wrong filing status, which can affect tax rates, standard deductions, and eligibility for certain credits. For example, some individuals who support a dependent may qualify for Head of Household, which offers a larger standard deduction and lower tax rates than filing single.
The Bottom Line
Filing your first tax return is a big milestone, and something to be proud of. While it may feel intimidating, most first-year mistakes are preventable with preparation and the right information. The best way for first-time filers to avoid mistakes is to start early, keep organized records, understand all sources of income, and consult a qualified tax professional when questions arise.
For more information on tax filing and personal finance, visit MoneyLion or consult with a qualified tax professional. Remember, filing your taxes correctly the first year sets the foundation for better tax planning in the years ahead.
At onlytrustedinfo.com, we provide you with the fastest, most insightful analysis of breaking financial news. Our mission is to explain why it matters to investors, immediately. Stay informed, and stay ahead of the curve with our expert analysis and commentary.
