The 7 Most Common Tax Questions for Beginners, Answered

It's tax season: That joyous time when you look back on what you earned last year and figure out whether you gave enough of it to Uncle Sam. Think of it as Christmas for the government.

If you're new to filing a tax return, the process can seem daunting. The forms have cryptic names. Making a mistake can have serious consequences, whether it's inadvertently paying too much, or paying too little and getting audited. A quick lesson in the basics of filing a tax return might help.

Before we begin, a reminder: I'm not an accountant. If you have a question about your individual tax situation that you can't answer by consulting the Internal Revenue Service, ask a professional. (See also: 6 Great Places to Get Free Tax Advice)

1. Do I Have to File a Tax Return?

You may be surprised to learn that not all adults are required to fill out a federal tax form every year. According to the Internal Revenue Service, you could be off the hook if you earned less than $10,000, or if certain other criteria were met. However, you may still want to file, because you could qualify for a tax credit that puts money back in your pocket. (More on that below.)

2. Do I Need to Hire an Accountant to File?

No. If your tax situation is simple — for instance, if all your income comes from your full-time job and your earnings are modest — your filing process should be straightforward. Of course, hiring an accountant could save you time. The IRS estimates that the "short form," 1040A, takes about 10 hours to file.

If you want to do your own taxes but are worried you'll make a mistake, using a tax prep website can be a good compromise. TurboTax, H&R Block, and TaxAct all offer free versions for simple returns. If your taxes are a bit more complicated — for instance, if you want to search for possible deductions — you can get both state and federal taxes filed through these sites for between $40 and $100. (See also: 8 Ways to File Your Taxes for Free)

3. Where Do I Find Tax Forms?

If you file online, you don't need to locate forms — any of the websites mentioned above will ask you questions and then submit your return online. But if you want to take pencil to paper, you can print out tax forms from the IRS website or pick them up, along with instruction booklets, at a public library or post office.

4. What Money Do I Have to Pay Taxes On?

You have to pay taxes on almost any money you make, whether it's from working, selling something, or even finding buried treasure. That said, there are plenty of exceptions, such as most gifts, compensation for injuries, proceeds from selling your home (within limits), and investment gains inside certain retirement accounts (you'll pay taxes on the gains inside your IRA eventually, but not now).

Getting paid in cash, making money doing something illegal, or working without documentation do not exempt you from paying taxes on the money you make.

5. Will I Get a Refund?

Most employers take money out of your check week after week, all year. Because no one knows exactly how much you're going to owe the IRS until the year ends, this withholding is merely an estimate. Once you work out your taxes, it may happen that the money taken out of your check every week turned out to be too much. If that happens, the IRS will refund the difference.

On the other hand, if it turns out that the money withheld was less than your tax liability, you will have to send the IRS a check.

Just because you got a refund last year doesn't mean you'll get one this year. Things change; for instance, if you made more money this year, you might have moved to a higher tax bracket, causing you to owe more.

Moreover, getting a huge tax refund isn't necessarily a great thing. While receiving a fat check is always fun, what this really means is that you gave the government an interest-free loan all year. If you get a large refund this year, you should look into having the amount taken out of each paycheck reduced so that it doesn't happen again next year.

6. What's the Difference Between a Deduction, an Exemption, and a Credit?

All three are ways the tax code allows you to reduce the tax you owe.

For the average taxpayer, an exemption and a deduction are practically the same thing: They both reduce the amount of your income that counts toward your taxable total. The most well-known exemption is for your children: For 2016, everyone gets to subtract $4,050 from their income for a dependent child living in the home.

We get tax deductions for charitable donations we make, mortgage interest, and for some work-related expenses, among many other things. For example, if you earned $50,000 this year, donated $2,000, and spent $1,000 looking for work, your taxable income would be $47,000 (minus any other exemptions and deductions you have).

Tax credits are subtracted directly from your tax bill, not your income. For instance, if your tax bill for the year is $5,000, but you can claim a $4,000 tax credit, you only have to pay $1,000.

One of the most important tax credits to know about is the earned income tax credit, a benefit for working people with low-to-moderate income. Qualifying families can receive between $3,373 and $6,269, depending on their number of qualifying children (or $506 for no qualifying children). The best part is, if your credit is more than you owe on taxes, you'll get the balance back as a "refund."

For instance, say you and your spouse owed $5,000 in taxes in 2016, but you qualified for the maximum credit of $6,269. The IRS would send you a refund check for $1,269 — plus any taxes that had been withheld from your paychecks. This is why it may be a very good idea to file a tax return even if you didn't earn enough for it to be required.

7. What If I File Late?

If you're not going to be able to submit your tax return and any tax owed by the deadline (in 2017, it's April 18), you should at least file for an extension by that date. If you were expecting a refund, being late on submitting your forms isn't a big deal. But if you end up owing a payment, the IRS will charge late fees every month — so don't delay.

Of course, it's never too late to pay money you owe to the IRS. If you failed to file or to pay what you owed in past years, you can file a "back tax return" now. If less than three years have gone by, you can even claim refunds for past years.

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Guest's picture

Stay away from cheap tax agents with big promises. I would suggest to just do it yourself with some trusted tax software from H&R Block or TurboTax, get a coupon from BargainCat and do it yourself.