Students in U.S. schools learn a variety of topics they may never use. But most of them aren’t learning one skill they will almost certainly need later: how to do their taxes.
Personal finance education itself is catching on, but is still pretty sparse in American schools. Just 25 states guarantee a standalone personal finance course for students before graduation, according to Next Gen Personal Finance. And there are a number of reasons taxes may not be a part of the curriculum in those programs.
“I am a tax accountant and I spent five years of additional education after high school and an additional eight years in public accounting to understand taxes, and it still would be difficult for me to do my own taxes by hand,” Abby Donnellan, a certified public accountant and senior tax strategist at Moneta, tells CNBC Make It.
Depending on your situation, the process itself may not be difficult, she says. But a number of variables can make it tricky to do your taxes yourself.
‘Follow the instructions’
For someone with a straightforward income situation, filing your tax return is generally straightforward as well. But it can still be confusing.
Your employer will send you a W-2 or 1099 form showing how much money you earned and how much you already paid in taxes. Then, you need to fill out the appropriate Form 1040, which you can find on the Internal Revenue Service’s website. The IRS also has guides to help you figure out which form you need.
From there, “follow the instructions,” Donnellan says. “There are a lot of forms on the IRS [website] that can help you determine what your taxable [income] amount is. You’re not having to pull tax rates and actually calculate that.”
That calculation process is where things can get tricky, especially if you have a variety of income sources, Donnellan says. Ordinary income is taxed at what’s known as the marginal tax rate, whereas other sources of income, such as capital gains from investments or profits from a side gig or sale of goods, are taxed differently.
“Because people don’t have the background in tax law, some people don’t know what ordinary income is,” Donnellan says.
Your ordinary income is generally your salary and wages, but can also include earnings from things like rent you collect on an investment property or interest you earn on certain investments. Self-employment income is treated differently, though.
You’ll also want to look for tax credits and deductions that can lower your tax liability. You can choose to take the standard deduction, which allows you to lower your taxable income by $13,850 for single filers or $27,700 for married couples filing jointly, or itemize your deductions to subtract things like student loan interest, retirement contributions and more.
Common credits include the Child Tax Credit for parents and guardians of qualifying dependents and the Earned Income Tax Credit for low to moderate-income earners.
This is another area that can be difficult if you don’t have experience or knowledge of tax codes to make sure you’re accounting accurately, which is one of the benefits of using a tax software or hiring a professional. A software or tax pro will know to ask if you fit the description for these and other credits and deductions.
“You’ll get more back if you’re using those,” Donnellan says.
File for free
You can get free fillable forms from the IRS to do your taxes on your own, but the agency recommends exploring the free software options available first to ensure accuracy and, if applicable, get your refund faster.
The IRS has several free options available. Taxpayers with an adjusted gross income of $79,000 or less can file for free using a number of IRS Free File partners.
In 12 states this year, taxpayers earning less than $200,000 who don’t have complicated tax situations will be able to use the new IRS Direct File program to do their taxes.
Additionally, the IRS has a long-standing Volunteer Income Tax Assistance program that provides free tax services for those who need it, including:
- People earning $64,000 or less
- Persons with disabilities
- Limited English-speaking taxpayers
Mistakes can happen however you wind up doing your taxes. But taking advantage of resources like tax professionals and free software can help you avoid costly errors and get the refund you’re due.
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