Tax Season Tips for Beginners

Tax time is around the corner, and it's one of the least favorite times of an average person's year. Whether you're filing as an individual, married, or as a business, the task seems daunting. And unless you're a tax professional, and you don't want to use tax software like TurboTax, then it is quite a pain. But fear not! Here are a few tips that will help the average person when it comes time to sit down and crunch the numbers.

Know the Difference Between Taxable and Non-Taxable Income

Taxable income includes the following:

• Dividends on investments
• Lottery winnings, royalties, gambling gains
• Interest from bank accounts, and all bonds except municipal bonds
• Unemployment compensation
• Your salary, sick pay, or severance pay from your employer
• Capital gains on investments
• Withdrawals from an IRA
• Bonuses and tips

Non-taxable income includes:

• Contributions to an IRA
• Gifts
• Return of invested capital
• 401(k) rollover
• Child support receipts
• Money received as payment for a loan

Make use of adjustments

Adjustments are used to lower your total taxable income. Some examples include

• Expenses you incur moving for a new job at least 50 miles away
• Classroom expenses for teachers
• Qualified performing artists
• Traditional IRA deductions
• Student loan interest deduction
• Several others. Here's a link to the IRS page on adjustments.

Be Smart About Your Deductions

There are many deductions, and a little research or help from a tax professional can save you a lot of money. If you have a relatively simple financial situation, as in you don't run a business or own property, then you'll be better off taking the standard deduction. The government allows all citizens to reduce their taxable income by at least the standard deduction, even if they don't participate in activities deemed deductible. For a list of deductions, go here.

Be Sure You Have to File at All

There are several factors that go in to filing a return, and not every single person that received income has to file. Here's an informative chart from Forbes:

 

Basically, it reads right to left, and if you hit those criteria, you have to file a return.

I hope these tips help in your tax filings!