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Zach Witt:

It's finally happening. You tried your best to avoid it. Now it's time to face reality. You have to file a tax return.

If you've never filed a tax return before, it's understandable to feel a little anxious heading into your first filing season. Now, it doesn't make the list of fun things to do for most people. In fact, it probably tops the list of things people don't want to do. But the filing process doesn't have to be a big deal.

And it's actually pretty straightforward once you understand the basics. So let's walk through the process with Sarah, a recent college grad. Sarah was thrilled to land her first job. She's an assistant to a mid-level manager for a regional paper company.

OK, it's not her dream job, but it's a big first step. She's receiving a regular paycheck, and she's happy. She even managed to stay happy for the most part after she ripped open the envelope with her first paycheck and discovered how much smaller it was after taxes and payroll deductions were removed from her gross earnings. But now she has to file her first tax return.

How does she know this? Well, anyone who earns above a certain amount of money from a full-time job, part-time work, or investments probably has to file a tax return. To make sure she earned above the threshold since she started her job late in the year and hadn't earned a full year's salary, she checked the IRS website. She also checked the tax websites for her state and city.

Turns out she did pretty well. But it also means she will, in fact, have to file federal and state tax returns this year. How much she owes will be based on her total taxable income, which is calculated as her total earnings minus any deductions. So Sarah's first step is to assemble the paperwork that confirms her total taxable income.

These forms were either mailed to her at the beginning of the year or available online and include Form W-2 from her employer that reported her gross earnings and tax withholdings, Form 1099-NEC for the freelance contract work she did before starting her full-time job, Form 1099-INT for the interest she earned in her savings account, and consolidated Form 1099 that reports her dividends and capital gains from her investments.

Turning Sarah's attention to deductions, she finds that her student loan servicer provided her a Form 1098-E for the amount of interest she paid in the current year. Her bank also provided a Form 1098 for the amount of interest she paid on her home mortgage. Since Sarah is very charitable, she collects all the acknowledgment letters each Section 501(c)(3) organization sent her for donations over $250.

It is important to note that deductions don't always have official documentation. These include small charitable contributions, the cost of a home office space, expenses related to contract work, and certain health care costs, to name a few. All these deductions are subject to various limitations. If keeping track of all your deductions is a burden, the IRS also offers a standard deduction, which is a fixed amount based on your filing status.

Taxpayers like Sarah can choose between itemizing deductions or taking the standard deduction, whichever is greater. Once Sarah's calculated her total taxable income, she can look to apply tax credits, which help further reduce her tax bill.

There are dozens of possible tax credits she may be eligible for, such as education credits and income credits. So she checks the IRS website for a full list. It's important to note that while deductions reduce your taxable income, credits reduce the actual tax paid dollar for dollar. Finally, Sarah asks her parents if they're claiming her as a dependent on their tax return, which would limit her ability to access some credits and deductions.

In Sarah's case, she isn't under 19, and she's not a full-time student under the age of 24. So her parents can no longer claim her as a dependent. Now comes the moment of truth, actually filing her tax returns.

If she had a complex tax situation, she could hire a tax professional to help. But since she's a first-time filer with a pretty straightforward tax situation, she decides to do it herself. Many companies make it easy to file online, and Sarah picks one. Instead of facing down the actual government tax forms, it asks her simple, jargon-free questions and uses her answers to complete the tax forms.

She reviews the final document and then submits it. Easy. And it turns out she's going to receive a refund. All she has to do now is wait for it to show up in her bank account.

If Sarah realized she wasn't going to be ready to file on time, or she hadn't received all her paperwork, it would have been perfectly fine to ask for an extension. This would have pushed her filing date from April 15 to October 15. Note this extends the time to file her return, not pay any amount due.

If Sarah discovers she made a mistake on her return, that's OK, too. She can amend her return at any time up until three years from her original filing date. The one thing that could have created problems for Sarah would have been not to file her returns at all. She could have been subject to some pretty steep penalties and interest.

So to recap, if you earn income above a certain threshold for the year, you will need to file a federal tax return. State and local rules vary, so check the guidelines for where you live. To prepare to file, you should keep incoming tax forms that support your earnings and deductions in a file that you can easily access until you're ready to prepare your returns.

You can choose to file yourself or hire a tax professional to help. Just be sure to get your tax return in by the deadline to avoid penalties and interest. Now, as I said at the start of this video, no one is going to tell you that filing your tax return is particularly enjoyable. But it can be manageable, stress free, and even easy.

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