Congratulations to the Class of 2019! Graduating from school can mark an exciting time for new graduates as they transition from being a student to becoming a working professional. This three part series will dive into some helpful information and tips on what to expect as you journey down your career path.
It’s exciting to finally graduate and most students are ready to begin their careers once the cap and gown come off. Whether you are just starting the job hunt or have already landed a job, in the second part of this series, we’ll give you a brief overview of the common tax documents you may receive and the general rules for filing an income tax return.
Employees, not freelancers or independent contractors, will receive a Form W-2 which reports taxable wages, income tax withheld, along with Social Security and Medicare taxes withheld. Employee benefits may also be reported on your W-2 as special reporting situations in boxes 7 – 14. These special reporting items will need to be reported on your individual income tax return when it comes time to file.
The current deadline for employers to send out W-2s to employees is by January 31 after the respective year end so if you haven’t received your W-2 by mid-February, it’s best to reach out to your employer’s Human Resources or payroll department to inquire on the status.
Freelancers and Self-Employed
Many young professionals are venturing into business for themselves after college. If your business is set up as a sole proprietor or single member limited liability company (LLC), the business should be reported on Form 1040, Schedule C. Other business types will file based on their respective tax forms depending on the type of business entity they are operating under. If conducting business as a non-incorporated entity, business owners should receive a Form 1099-MISC if they received $600 or more in non-employee compensation in return for services performed during the year. Keep in mind that all income received needs to be reported on your tax return regardless of whether a 1099-MISC was issued to you or not. And in most cases, no income taxes are withheld from this income and are the responsibility of the taxpayer at the time of filing their income tax return. The good news is that business expenses can be used to reduce your taxable income, so be sure to maintain all documentation related to business expenses.
Like Form W-2s, the current deadline for 1099-MISCs to be sent out is by January 31 after the respective year end.
Individuals are required to consider all income to determine whether a filing requirement exists, regardless of the amounts reported on your W-2 or income received while self-employed. Sources of income can include unearned income, including but not limited to, taxable interest, ordinary dividends, and capital gain distributions, unemployment compensation, taxable social security benefits, etc. and earned income, including but not limited to, salaries and wages, tips, professional fees, and taxable scholarships and fellowship grants. Gross income is the total of your unearned and earned income for the year.
Filing requirements can depend on the amount of income received and whether you can still be claimed as a dependent on your parent’s (or someone else’s) tax return but single filers who cannot be claimed on their parent’s tax return will be required to file for the 2019 tax year if their income exceeds $12,200. Keep in mind there are many circumstances that can affect your filing requirement so your circumstances should be considered annually as these change can affect your filing requirement.
State Filing Requirements
Many students will decide to accept a job or conduct business outside their home state after they’ve graduated from school. In these cases, this will affect the filing requirement for new graduates as they join the work force. Before accepting a job, consider your residency status, i.e. resident, nonresident, or part-year resident, and the tax filing requirements for each state. Keep in mind that each state is different so state filing requirements should be considered each time you move, work in a different state from where you live, or work remotely in another state. It’s a good idea to discuss your tax liability with your employer or tax professional before accepting a job.
Things to Consider
When considering your federal and state filing requirements, keep in mind that there are always special circumstances that can affect your tax return. In addition to changes in employers and residency, new graduates may also experience many milestones after the first few years out of school and these life changes that can affect their dependency status on their parent’s tax return or filing requirements. Special consideration should be made every year as to your filing status and applicable credits on your tax return.
As always, our CPAs at Mason + Rich are ready to answer any additional questions. Feel free to call us at 603-224-2000.
See Part I Here - Starting a New Job
See Part III Here - Deductions and Credits