Once you become an adult, filing taxes becomes essential. Filing your taxes has several benefits, but filing them wrong can have consequences. But can an 18-year-old file taxes independently?
Generally, young adults remain dependent until they reach 19, but only if they have stopped their education. Their parents can still claim them as dependents until they reach 24 if they continue their studies. However, if you earn an income or have another source of money that makes you self-dependent, you can file your taxes independently.
Independent Tax Filing at 18: Is It Possible?
Is it possible to file taxes independently at 18? Even if you are still young enough to be a dependent, if you earn an income, you may have to pay taxes. Whether you must file an independent tax return or remain a dependent on your parent’s tax return depends on certain factors.
These factors include the following: you have an income from a job, you are self-employed, you have an unearned income from investments, or you must claim a tax refund.
Minimum Earned Income for Tax Filing
At 18, your parents can still claim you as a dependent. However, once your income exceeds the standard deduction, you can file taxes independently, even if you are still a minor.
The standard deduction changes annually. For the 2023 tax year, the amount stands at $13,850. Therefore, if you work part-time after school and earn less than the standard deduction, you won’t owe anything in taxes.
However, if your employer withheld taxes for that amount from your paycheck, the IRS will need to refund you that amount. You can only get a refund if you file a tax return.
Unearned Income and Your Tax Requirements?
There is also a cutoff level for unearned income, such as interest, dividends, or rentals. For the 2023 tax year, it’s $1,250, meaning you don’t need to file taxes independently if you earned less than that.
If you have earned and unearned income, the total income determines if you can file taxes independently or remain on your parental tax return as a dependent. It will increase your parents’ tax but save you from filing a tax return.
In the event you earned an income and had another source of income, the of the two amounts determines if the total income triggers the mandatory filing requirement.
Advantages of Filing Taxes Solo at 18
Even if the law doesn’t require you to file a tax return because your earnings were less than the standard deduction, those few minutes you need to fill out a filing have several advantages.
- Tax refund – If your employer withheld any taxes from your earnings, filing is the only way to get a refund. Since your employer has paid taxes for you, filing alleviates any queries from the IRS about why you don’t file a tax return if you have a job.
- Ability to set up a Roth IRA – Even though you can start contributing to a Roth IRA when you are younger than 18, your parents or guardians must set up a beneficiary account. From 18 years of age, you can start one in your name, even if you don’t file a tax return. However, filing taxes creates a paper trail for your retirement contributions, whose growth remains tax-free. The younger you are when you start contributing, even with a small amount, the more you can expect your retirement contributions to grow.
- Educational tax credits – Sometimes, parents earn too much money to qualify for academic tax credits like those offered by the American Opportunity Tax Credit or the Lifetime Learning Credit. These two educational tax credits can only be used for different dependents, meaning parents can’t take both for the same dependent in one year. If your parents don’t claim you as a dependent, filing a tax return could qualify you for the credit, which could be worth much more than the money your parents lose from their dependent credit.
Understanding Tax Requirements for 18-Year-Olds
Any U.S. citizen or permanent resident making more than a certain amount yearly must file an annual tax return. Your dependency status and income will answer the question, “Can an 18-year-old file taxes independently.”
The things that determine if your parents can add you as a dependent when filing their taxes include:
- You must be under the age of 19 or 24 if you’re a full-time student
- You must live with your parents for at least half the year or more
- You must not provide more than half of your financial support
- You are single
- You can qualify as a dependent of other relatives if you meet the above criteria.
Therefore, filing an independent tax return is best if your earned or unearned income exceeds the tax year threshold. You should also know that if you are self-employed, any amount earned over $400 requires filing for self-employment taxes and a tax return, even if you don’t qualify to pay federal tax.
Essential Tips for Independent Tax Filing at 18
- Check your total earnings (earned and unearned) for the year to determine if you reach the threshold for an independent filing.
- Ensure you have a valid social security number.
- Understand your employee designation. If you worked as a W-2 employee, your employer may have already withheld taxes from your paycheck, meaning you will probably get a refund. If you work as a contractor making over $400, you must file a tax return and pay self-employment tax.
Exploring Tax Deductions for Young Independent Filers
It’s important to know that deductions lower your tax bill. Here are some of the possible ways to save money on taxes.
1. American Opportunity Tax Credit (AOTC)
If you are still at school, you could qualify for the AOTC. The student tax credit can add up to $2,500 for your undergraduate education needs during the tax year. Up to 40% of the credit is refundable, meaning you can get it even if you don’t owe any taxes that year. You can take advantage of this for four years of your degree only.
2. Lifetime Learning Credit (LLC)
Unlike the AOTC, with the LLC, you don’t have to be an undergraduate student. All other students qualify, too. The maximum benefit is up to $2,000 per tax return.
3. Student Loan Interest
If you are a student repaying a student loan, you can subtract up to $2,500 of the interest paid towards the loan annually from your taxes.
4. Moving Expenses
Suppose you enrolled in the military instead of college and had to move by military order. You can claim the following expenses for your move (these include the costs for a spouse and dependents if you have any):
- Storage of household possessions and personal effects
- Your travel expenses from the old to the new home (including lodging but not meals)
5. Self-Employment Tax
If you are self-employed, you can deduct one-half of your self-employment tax on your tax return.
6. Home Office
If you work from home for yourself or your employer, you can make a deduction for your home office. The expenses you can deduct include utilities, insurance, and general repairs. However, you cannot make deductions for unrelated expenses. The IRS website provides two methods to work out home office deductions.
7. Standard Mileage Rate
If you use your car for work or business, you may qualify to deduct the standard mileage rate (65.5 cents (0.655) per mile as of 2023). However, suppose you withhold the standard mileage rate. In that case, you cannot use the car expenses deduction nor get any tax credit for your lease payments, gasoline, vehicle registration fees, car depreciation, oil, or insurance.
8. Car Expenses
You can deduct car expenses if you don’t deduct the standard mileage rate when using your vehicle for business purposes. Split the deductions if you use your vehicle for business and personal purposes.
If you’re a business person or self-employed, you can claim 50% of unreimbursed business meals when traveling. The IRS has a standard meal allowance, which you can use. Otherwise, you’re your sales slips for meal costs and work out the deductions.
10. Travel Expenses
The IRS also allows you to deduct some travel expenses when traveling for your own business or professional purposes. You can subtract any travel mode, taxi fares to your hotel and the airport, baggage shipping, laundry, and business calls.
SoFi provides several more significant tax deductions like your 401K contributions, but remember, tax deductions can get complicated. Ask a tax professional if you are unsure which you qualify for.
Common Mistakes to Avoid when Filing Taxes at 18
There are some common mistakes that you should avoid making when filing taxes at 18. These are also relevant to people of all ages:
- Avoid getting things wrong when doing your tax return. You can always correct things, which won’t lead to a tax audit. But it can cause a delay in your refund if you qualify for one. The system automatically corrects mathematical errors, which aren’t as crucial as filling in wrong amounts.
- Before doing your tax return, check the current rules for filing statuses, minimal earnings, and tax deductions to ensure you know what you qualify for.
- Always include all your income, including Form 1099, if you’re self-employed.
- Check which tax credits you are eligible for.
- Tax software or a tax professional can help you avoid common errors.
How to Navigate Tax Forms as an Independent 18-Year-Old
Now that you know you can file taxes as an independent 18-year-old and have figured out that you must file, here’s help navigating tax forms.
Organize your information so that you have it all near you. These include your social security number, relevant income statements according to whether you worked for someone or are self-employed, and your unearned income.
You can fill in the paper forms available from any IRS office. However, the IRS also provides several free tax software programs that you can use to submit your tax return.
Depending on how complicated your income is, you will need anything from a few minutes to a few hours to complete the form.
Here’s what you must complete:
- The basics – Provide all the personal information required, including your name, date of birth, and Social Security number.
- Choose your filing status – The IRS must know which tax rates to apply to your declared income. Choose “single” unless you’re married.
- Report your income – Your W-2s provide information about your employer, revenue, and the tax your employer paid for the year. Enter the information required on the form correctly. Next, the program will prompt you to enter any other income, including unearned money and self-employment.
- Choose deductions from standard or itemized – You can subtract some deductions from your taxable income by choosing the standard or itemized deductions. At 18, you probably have only standard deductions. However, if you own a business with many expenses, you must add the itemized deductions.
- Check for any eligible tax credits -These can reduce what you owe from your taxable income. Most tax-filing software programs do a built-in check to see if you qualify for any credits. But you should also know what you are eligible for to ensure you get them.
- Submit – Once you’ve completed your tax form, recheck everything to ensure the information provided is correct. Before submitting, you can see if you will owe taxes or qualify for a refund. Provide the IRS with your bank account information if the program indicates a refund. Now, you are ready to sign your tax return and submit it. Both your signature and submission are done electronically through the IRS system.
Read more about submitting your tax return on Investopedia.
Maximizing Your Tax Refund as a Young Independent
As a young independent, it’s vital to understand how tax works. It can help you maximize your tax refund, minimizing your tax liability. Use the deductions and credits you qualify for when doing your tax return, and you may even be eligible for a tax refund to help you pay down debt or invest elsewhere.
If you are unsure how to maximize your tax refund or file your taxes, speak to your parents or a tax professional.