Taxes 101: You don’t need your parents to do your taxes
Written by Leadership Council Member, Kathie ZippAre you jumping to turn around your taxes the day you receive your W-2s to get that return ASAP? Or do you procrastinate—maybe and still don’t have them done? Maybe your parents do them for you?
As a young professional, taxes may seem complicated and overwhelming. As an organization focused on empowering young professionals to grow professionally and personally, Engage! Cleveland’s Leadership Council member, Kathie Zipp has provided a few tips and tools to help you tackle your taxes!
What types of taxes do I have to file? You have to file federal, state and city taxes.
You can file all three through a certified public accountant (CPA), or file federal and state together online and city separately online or in person. I live in Parma and am able to take my W-2 into city hall on certain days when people in cubicles file it super quick for me for free. I would imagine other cities offer the same service. You should be able to find out about tax filing options on your city’s website.
Your employer is only responsible to withhold federal and state taxes, and taxes for the city you work in. So if you live in a different city than you work, your employer may or may not take out your residence taxes. When you file your taxes for the city you live in, they may give you a credit for the city where you work, so you’re not exactly paying double. If your taxes weren’t taken out of your paycheck, you may owe a fair amount, but your city will likely enroll you in a plan to pay quarterly for the past year and years going forward so you don’t have to pay all at once.
If your municipality (city or village) is part of the Regional Income Tax Agency (RITA), you can pay your residence income tax through its website. RITA is just an agency that helps enforce municipal tax laws and makes tax collecting easier for cities who choose to participate.
You should get a W-2 form from your employer showing your annual wages, which is the main form you’ll work off of to do your taxes, or get them done. If you’re filing with software or hiring an accountant for the first time, you’ll at least need a copy of last year’s tax return, your social security number (and your spouse’s if applicable). Here are some other forms you may need to have depending on your circumstances.
When you do your taxes, you are technically submitting a 1040 form.
Should I do my own taxes online, or get an accountant? Most young people have relatively straight forward taxes (one W-2 form with maybe a couple deductions from student loans, a mortgage or medical expenses) and can do their taxes online in a short amount of time. But if you feel your tax life is complicated (you work three jobs and freelance on the side and also rent out a property, or maybe own your own business and are filing for the first time) it might be worth the few hundred dollars to hire a CPA.
I’ve been doing my taxes myself for the last few years and I’m confident most of you can do yours too—at least give it a try. With so many online platforms, doing your own taxes has never been easier. I always dread it but each year it turns out to be easier than I think. This year it probably took me half an hour, and that was moving along cautiously clicking the “?” symbols to double check myself. One Saturday morning I made a nice cup of coffee and I was done!
With commercials from H&R Block, TurboTax and more, knowing which platform to use can be confusing. Irs.gov offers a list of software providers that offer free federal returns, some of which may or may not charge to file your state taxes as well. Options vary based on your income, age and state. I’ve been using FreeTaxUSA for the last three years and find it super easy. I can file my state and federal taxes for about $12 and it saves all my information for the next year. The list also breaks down criteria for popular software like TurboTax and H&R Block, and has a “Lookup” tool to help you decide which free file software is best for you.
What can I write off? Here are some common items young people may write off their taxes:
Student loan interest: You can write off your student loan interest you pay during each year. If you paid $600 or more, you'll receive a Form 1098-E Student Loan Interest Statement. You can enter the amount of interest on this form into the software program you’re using or provide it to your CPA to get your deduction.
Mortgage interest: You’ll get a Form 1098 from your mortgage lender showing how much interest you paid the previous year. Also check your settlement sheet to see how much you paid from the date you closed to the end of that month, because that amount may not be included in your 1098 but may be included in your deduction. You can also deduct your property taxes, which may be shown on the form from your lender if you pay through an escrow account. If you paid directly to the city, you may have reimbursed the seller for real estate takes they had prepaid, so this information would be listed on your settlement sheet. You can deduct this amount too. You can also deduct home improvements, energy credits and more.
Medical expenses: If you spent more than 10% of your income on qualified medical expenses (money you paid out of pocket to cover the amount your insurance won’t) you can write them off. However, you’ll want to make sure you have receipts in case you get audited and need to prove you spent the money on qualified medical expenses, which are specifically spelled out by the IRS. These can include many dental and vision expenses and more, just check the list first.
Note that if you don’t have health insurance, you’ll have to pay a fee of 2.5% of your income or $695, whichever is higher.
There’s a lot more information out there so you may need to do some additional research, but with each year you do your own taxes, you’ll further learn and understand tax laws and what you can deduct.
If you’re looking to celebrate after your taxes are done, check out one of these upcoming Engage! Cleveland events!
** This post was not written or sponsored by an accounting firm or tax specialist. Engage! Cleveland does not endorse anything written or products mentioned. This blog post should not take the place of a tax professional. Please consult a professional for additional advice or questions