Filing Your Annual Tax Return (Dear Teenager – 4 of 4)

Dear Teenager,

The last topic I want to discuss with you is filing your annual tax return. A new year recently began. For your friends in finance, that meant the beginning of what we call ‘tax season.” If you worked last year, chances are high you were one of the millions of Americans that prepared to file their taxes by April 15. You might have wondered how to get started, what gets reported, and if you even need to file.

You are probably well aware that taxes are due in the middle of April each year. However, you may not know that you can request an extension of time to file your return. This extension moves your due date to mid-October and gives you additional time to gather your documents. But beware, an extension of time to file does not mean an extension of time to pay. Your balance is still due by April 15.

REQUIREMENTS TO FILE A RETURN

Simply earning income does not generally mean that you must file a tax return.

You are not required to file if:

• Your W-2 earned income is under $14,600
• Your investment income is under $1,300

Even if your W-2 wages fall below this amount, it’s likely your employer withheld federal and/or state income taxes. So you may want to file a return in order to get that money back as a refund.

You are required to file if:

• You are in business for yourself and earned more than $400 in self-employed income

Self-employed individuals have a significantly lower filing threshold due to needing to remit self-employment taxes, which we chatted about earlier.

DEPENDENT RULE

An important thing to remember when completing your tax return is whether you can be claimed as a dependent.

It is likely that you can be claimed as a dependent if:

• You are under the age of 19 (or 24 if you’re a full-time student)
• You do not provide more than half of your own annual financial support
• You are unmarried 

This is an important distinction as improperly answering this question on your tax return could incorrectly qualify you for certain tax credits. Later when your parents file their own tax return, the IRS may issue a notice of correction requiring the payback of those credits. In addition, your parent’s tax return could get rejected, adding complications to their tax filing process.

FILING YOUR RETURN

So now you’ve determined whether or not you need to file a tax return and if you can be claimed as a dependent. The next step is gathering your tax documents to prepare your return. Generally, the people or organizations that paid you during the year must report those payments to you and to the IRS. The IRS will match their copy of these records against your tax return. It is important to make sure you enter all of the numbers on your W-2 and/or 1099s carefully. The IRS will issue a corrective notice if there is a matching error to collect tax due on the difference.  

Preparing your taxes may seem intimidating. There are lots of low-cost options to help with preparing your return. You can use online software options or check with the IRS’s Volunteer Income Tax Assistance (VITA) program to see if you qualify for free tax return preparation. The important thing is to address your taxes early so that you’re not stressed to meet the mid-April deadline. Hopefully you’ll see a tax refund for your troubles!

Best,

Friend in Finance