How do you file taxes as a first-time buyer or a repeat buyer? Filing taxes can be overwhelming and confusing. It can seem like one of the most daunting things, and at the same time, you're feeling overwhelmed. You're also wanting to save the most amount of money possible. So we're going to talk about the two main ways that you're going to file your taxes to save the most amount of money possible. It is not as confusing as it seems.
We're gonna break it down into simple steps at the end, we're going to talk about ways that you can file taxes and some other ways that you can find cost savings that you might not know about right now. So let's go ahead and dive in.
So there are two main ways that you're going to file taxes. And first of all, when we talk about filing taxes, we're mainly going to be talking about if you are currently employed. You get a W2 or 1099. Those are going to be most of the ways that you're doing that. If your self-employed taxes are going to be a little bit more complex for you since you have business expenses that you're managing along with distributions to yourself.
We're mainly going to be sticking around the W2 and 1099 area. So you're going to get that from your employer and that's what you're going to use to file taxes. Now, your W2 is going to show you your wages along with anything that was withheld things like taxes or any retirement accounts, things that were withheld from your paycheck to get paid to the government.
And when you file taxes, what you're doing is you're telling the government exactly what your expenses were so you can get a refund back or you can see what taxes you owe.
So there are two main ways to file deductions on your taxes to get the most refund possible. Because what you want to do to get the maximum refund is show the government your expenses as much as you can in the most ethical way possible.
So there are two main sources. There's a standard deduction and an itemized deduction. So let's talk about the standard deduction first. The standard deduction is what most people take. So the government basically says with a standard deduction, Hey, we're just going to give you a flat out a number of what we estimate your expenses are going to be. You can take that standard deduction or you can itemize.
But a standard deduction, and we're going to go off of 2020's numbers, a standard deduction for a single person is $12,400. That means if you have your income on your W2, your deductions would be $12,400, and then you get taxed on the income after that.
If you are married and filing jointly, it's going to be 24,800. So you do the same thing. You take your income minus that standard deduction, so 24,800 and the income that's left is then what it's taxed. So you can see that the more deductions that we draw, the less income that will be taxed. So for most people, the standard deduction works.
So for instance, if you're single and you have less than $12,400 in expenses this year, then you might as well take the standard deduction. Most people, don't have as many expenses as the standard deduction creates for them. So it makes more sense to keep the standard deduction.
For instance, let's say on the standard deduction, you're a single person, and you barely have any expenses that you can write off on taxes. If you itemize, maybe you can only write off 2000, but if you use a standard deduction, you can write off 12,400. The standard deduction is easier, but itemized can save you more money. So if you have expenses that exceed these standard deduction limits, then you want to go over and start itemizing your expenses. So when you itemize your expenses, you're basically telling the government line by line what your expenses work.
So let's go through some of the things that you can deduct as a first-time homebuyer.
So first of all, you need to know that you'll get from 1098 from your lender. So if you have a home right now, 1098 is going to show you the interest that you've paid on your mortgage. That way you can deduct it as an expense on your taxes. So you can have less income being taxed. That's going to allow you to write down mortgage interest on your schedule A that list of itemized deductions.
So first you can get interest. That can be deducted as an expense. Now, this is up to mortgages at $750,000. It used to be 1 million, but now it's 750 something to keep in mind. If you have a mortgage higher than that, you might need to talk to a tax accountant to see the best way to find cost savings there. But you can deduct interest from that form of 1098.
You can also deduct points. That's going to be shown on your 1098 as well. Paying points is a prepaid expense upfront to lower your interest rate.
If you want to learn more about points, I do have a free guide called "Seven Proven Ways to Save Thousands on Your Home". You can get it at WTHYL -Free. It's going to tell you some different ways you can save money on your mortgage. So points can be deducted. You can also deduct local property taxes on your expenses.
So if you have mortgage insurance, meaning you put less than 20% down or you have a government loan that requires some mortgage insurance, you can write that off as an expense on your schedule as tax deduction.
Also if you have energy credits, now this doesn't always work in all regions, but some regions have the ability to qualify it for energy credits that depending on different costs saving that you have with your property.
So when you add all these up, they most likely won't exceed what your standard deduction is. But if you take all of these deductions along with everything else that you can deduct, so you can deduct medical expenses donations to charity, business expenses, and things like that. Then you might start to push past that standard deduction limit, meaning that itemized is going to save you more money.
So if you're a first-time homebuyer, really, the taxes don't have to be that complicated. You're going to get a form that 1098, that's going to show you things that you can deduct. Then I would recommend you either talk with a tax professional or use tech software. That's going to ask questions and help you find different opportunities to save money with your taxes. Because it's really not that difficult.
The main decision you need to make is are you going to go standard or itemized and some of that tax software can help you there, but you can begin to estimate when you list some of this out, if you're going to go standard or itemized, most people go standard. It makes the most sense there. But if you have a lot of extra expenses on top of your house expenses, that might work for you.
So I don't want to give a recommendation for the best tax software, because everyone has a different opinion in different situations. I found that honestly, TurboTax, if you have simple tax filing, then you can do Turbo tax for free.
If you get into a plan where you have to pay for it, then I might look at different alternatives. Credit Karma even has a free filing service. Free Tax USA has a free filing service. There are tons of them out there and a bunch of different other tutorials on ways to file taxes.