Education
A Beginner’s Guide to Taxes: How To File Taxes
This beginner’s guide will walk you through the key areas of taxes: how to file taxes, small business taxes, stock market taxes, and crypto taxes. Whether you’re filing for the first time or looking to brush up, this guide has you covered.
How to File Taxes
Filing your taxes starts with preparation. Follow these steps to make the process as smooth as possible:
1. Know If You Need to File
Most people who earn money in the U.S. need to file taxes. Here’s when filing is required:
- Earned income: If your income exceeds the IRS minimum for your filing status (e.g., single, married, head of household).
- Self-employment: If you earned $400 or more from freelancing or self-employment. Even if you’re not required to file, doing so can help you claim tax credits or refunds.
2. Gather the Right Documents
You’ll need to collect the following:
- W-2 Forms: From employers, showing wages and tax withholdings.
- 1099 Forms: For freelance income, dividends, or interest.
- Deduction Receipts: For medical expenses, charitable donations, student loan interest, or mortgage interest.
- Social Security Numbers: For yourself, your spouse, and any dependents.
3. Choose How to File
- Free File Programs: Use IRS Free File if your income is $79,000 or less.
- Tax Software: Programs like TurboTax or H&R Block guide you step-by-step.
- Tax Professional: Great for complex tax situations or if you want to maximize deductions.
4. Standard vs. Itemized Deductions
You can reduce your taxable income in two ways:
- Standard Deduction: A set amount (e.g., $14,600 for single filers in 2024).
- Itemized Deductions: Add up eligible expenses like medical costs, property taxes, or charitable donations. Choose whichever gives you a bigger tax break.
5. File by the Deadline
Taxes are due April 15, 2024. If you need more time, you can request an extension until October 15, but any taxes owed must still be paid by April to avoid penalties.
Need help? Free IRS resources are available for people with low income, disabilities, or language barriers.
How to File Taxes for Small Businesses
Small businesses have unique tax requirements. Whether you’re a freelancer, a sole proprietor, or run a corporation, here’s how to handle your taxes:
1. Understand Your Business Type
Your business structure determines how you file taxes:
- Sole Proprietor or Single-Member LLC: File business income and expenses using Schedule C on your personal tax return.
- Partnerships and Multi-Member LLCs: File Form 1065, and each partner reports their share of income on their personal return.
- S-Corporations: File Form 1120S. Owners pay tax on their share of business income.
- C-Corporations: File Form 1120 and pay corporate income taxes.
2. Track Your Finances Year-Round
Keeping accurate records is crucial. Track all income, expenses, and receipts for expenses such as:
- Office supplies
- Travel and meals (50% deductible)
- Business insurance
- Advertising and marketing costs
3. Pay Estimated Taxes
If you expect to owe $1,000 or more in taxes, you must pay quarterly estimated taxes by:
- April 15
- June 15
- September 15
- January 15 of the following year
Use Form 1040-ES to calculate these payments.
4. Claim Business Deductions and Credits
Save money by claiming deductions and credits like:
- Home office expenses: Deduct a portion of your rent or mortgage if you use part of your home exclusively for work.
- Equipment: Computers, software, and machinery are deductible.
- Business vehicle: Deduct mileage or actual expenses like gas and repairs.
- Credits like the Work Opportunity Tax Credit and Employer-Provided Childcare Credit can also reduce your tax bill.
5. File on Time
- March 15: S-corporations and partnerships.
- April 15: Sole proprietors and C-corporations.
Missing deadlines can result in costly penalties, so mark your calendar.
Stock Market Taxes
If you invest in the stock market, you’ll need to report your gains and losses on your tax return. Here’s what you need to know:
1. Capital Gains Taxes
When you sell a stock for more than you paid, the profit is taxed as a capital gain.
- Short-term capital gains: Stocks held for less than a year are taxed at your regular income rate.
- Long-term capital gains: Stocks held for more than a year are taxed at lower rates:
- 0%: For taxable income under $47,025 (single) or $94,050 (married).
- 15%: For income between $47,026 and $518,900 (single) or $94,051 and $583,750 (married).
- 20%: For income above these amounts.
2. Capital Losses Help Reduce Taxes
If you lose money on a stock, you can:
- Deduct up to $3,000 of losses from your income ($1,500 if married filing separately).
- Carry forward unused losses to future tax years.
3. Dividend Taxes
- Qualified Dividends: Taxed at long-term capital gains rates.
- Ordinary Dividends: Taxed as regular income.
4. Be Aware of Wash Sales
If you sell a stock at a loss and buy it back within 30 days, you can’t deduct the loss. This is called the wash sale rule.
Keep an eye out for Form 1099-B from your brokerage—it shows your gains and losses for the year.
Crypto Taxes
Cryptocurrency adds another layer of complexity to taxes. The IRS treats crypto as property, so transactions must be reported similarly to stocks.
1. When You Owe Taxes
You owe taxes when you:
- Sell crypto for cash.
- Trade one crypto for another.
- Use crypto to pay for goods or services.
- Receive crypto as payment, rewards, or through mining or staking.
- Gain new crypto through airdrops or hard forks.
2. How It’s Taxed
- Short-term capital gains: For crypto held less than a year, taxed at regular income rates.
- Long-term capital gains: For crypto held over a year, taxed at reduced rates.
3. Record Keeping Is Essential
Track these details for each crypto transaction:
- Purchase dates and amounts.
- Fair market value when received or sold.
- Sale or exchange dates and values.
- Transaction fees.
4. New Reporting Rules
Starting in 2025, exchanges must report crypto transactions to the IRS using Form 1099-DA. This makes accurate record-keeping even more important.
Even if you don’t receive a tax form, you’re responsible for reporting all taxable crypto transactions. The IRS has increased enforcement in this area, so don’t skip this step.
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