Taxes and adulting: Here are seven things to keep in mind
2. Organize everything before filling out anything
Your tax return is a financial snapshot of your life over a 12-month period, in this case 2022. And a lot can happen during that time that will have tax implications and need to be reported.
"Think about what went on in your life in the past year," said Tom Saben, the director of tax content at the National Association of Tax Preparers.
For example, Saben asked, did you work more than one job? Did you move for a new job? Did you get laid off? Did you get married or have a child? Did you make student loan payments? Did you make money selling anything you own? Did you buy a home?
Next, pull together all necessary documentation. In addition to receipts and other paperwork you may have kept, you should also have tax forms that were either mailed to you or sent electronically — from your employers, brokerage firms, college, loan servicers, the state unemployment office, etc.
You'll need the information on these forms to fill out your tax return accurately. Keep in mind, the IRS also has a copy of these "third-party" forms that were sent to you, so its systems will flag if there is any discrepancy between what is on the form sent to you and what you put on your return.
3. Many types of income are taxable but tax isn't always withheld
Most people realize what they earn at a full-time job is subject to income tax and that those taxes are automatically withheld by your employer.
But any side hustle income you generate, or money you make as a gig worker, is also taxable, even if you're paid in cash or via a payment app. Ditto for tips. And often tax on that type of income is not withheld. You're just paid a gross amount and will have to set aside money to cover the taxes owed on it.
Severance payments and unemployment benefits may be taxable too.
And so is investment income — meaning the profits (or "capital gain") you make on the sale of an investment or property — which is basically the price for which you sell something minus the original price you paid for it. (Also worth noting: if you have investment income, also called "passive" income, it is taxed at a lower rate than your paycheck — i.e., "earned" income — assuming you held your investment longer than a year.)
Most dividends and interest payments are also taxable.
And remember all that lucrative fun you had betting on the SuperBowl or spending a weekend with friends in Vegas? Yup, your winnings from gambling and sports betting are considered taxable income. (The semi-good news is if you had any gambling losses last year, they can offset your wins, so it may be that you won't owe tax on your winnings if your losses cancel them out.)
For many of these types of income you should have received forms from your employer (a W2 if you're a full-time employee); from your clients if you're a contract or gig worker (eg. a 1099-K, a 1099-NEC) or, starting next year, from the payment apps on which you get paid for your goods and services (e.g., a 1099-MISC). Meanwhile, banks and brokerage firms will send you 1099-INTs (for interest), 1099-DIVs (for dividends) and 1099-Bs (for your capital gains and losses).
4. You have to file both federal AND state income tax returns, except in these states
If you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you don't have to file a state tax return because those states don't impose an income tax. If you live in New Hampshire and Tennessee, you won't have to file a return for your salary and wages. But you may have to file a return if you got income from dividends and interest during the tax year.
6. Figure out what credits you're eligible to take
A tax credit is a dollar-for-dollar reduction of your tax bill and if it's a "refundable" credit, which some are, it can actually increase your refund.
Some credits to be aware of, especially if you're not making a lot of income:
The Earned Income Tax Credit: The EITC is intended to help low- and moderate-income workers (defined in 2022 as those with earned income under $59,187), and especially filers with children.
The EITC is also available to earners without qualifying children and it's worth $560 for 2022.
Education credits: If you were in school last year, footed the costs and are not claimed as a dependent on anyone else's tax return, you may be eligible for an American Opportunity Tax Credit or a Lifetime Learning Credit. To see if you qualify, here's an IRS table comparing the eligibility requirements and the value of each of those credits. Also, check to see if your educational institution sent you a Form 1098-T, which you will need if you claim one of these credits.
The Saver's Credit: The Saver's Credit is a federal match for lower-income earners' retirement contributions for up to $2,000 a year.
The Child Tax Credit: If you're a parent you may claim a maximum child tax credit of $2,000 for each child through age 16 if your modified adjusted gross income is below $200,000 ($400,000 if filing jointly). Above those levels, the child tax credit starts to get reduced. And the portion of the credit treated as refundable — meaning it is paid to you even if you don't owe any federal income tax — is capped at $1,500, and that is only available to those with earned income of at least $2,500.
And if you paid for child care in 2022, you may be eligible to claim a dependent care credit.
