Your Tax Identity: How the IRS Learns Who You Are

It’s a surprising truth: the IRS doesn’t truly “know” you until the first time you file a tax return. For many, this is a pivotal moment—an official introduction into the tax system. But what does this mean, and how does it impact your relationship with the IRS? Let’s break it down.

Why Filing Taxes Creates Your IRS Identity

The IRS operates on data. Until you file your first tax return, you are essentially invisible in their system. Filing creates a record tied to your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). This record includes:

• Your name, address, and date of birth.

• Your reported income and withholdings.

• Your filing status (single, married, etc.).

This tax record becomes the foundation for how the IRS monitors your financial activity. From that point on, the IRS uses this record to track future filings, credits, and payments.

The Pros of Filing for the First Time

1. Access to Refunds
   If your employer has withheld taxes, you may be eligible for a refund. Filing is the only way to claim that money.

2. Eligibility for Tax Credits
   Filing lets you access credits like the Earned Income Tax Credit (EITC) or education-related credits. These credits can reduce your tax liability or increase your refund.

3. Establishing a Financial Record
   A tax history is often required for life milestones like applying for financial aid, buying a home, or securing a loan. Filing demonstrates financial responsibility and can support these applications.

The Cons of Entering the IRS System

1. Accountability for Future Taxes
   Once the IRS knows you exist, you’re expected to file annually if your income meets the threshold. Failure to do so can result in penalties or audits.

2. Increased Scrutiny
   Filing irregularities, significant changes in income, or missing deadlines can draw attention. The IRS may follow up with inquiries or adjustments.

3. Potential for Identity Theft
   Filing establishes your tax identity. If your SSN or ITIN falls into the wrong hands, criminals can attempt to file fraudulent returns in your name.

Filing for the First Time: What to Expect

1. Gather Documentation
   You’ll need forms like the W-2 (for employees) or 1099s (for freelancers), along with proof of any deductions or credits you plan to claim.

2. Choose Your Filing Method
   First-time filers can use IRS Free File for simple returns or consult a professional if their situation is more complex.

3. Set Up Direct Deposit
   Providing your bank details ensures faster refunds and simplifies future tax transactions.

Tips for Maintaining a Healthy IRS Relationship

• File On Time: Missing deadlines can lead to penalties.

• Keep Records: Maintain at least three years of tax documents for audit protection.

• Update Information: If you move or change your name, inform the IRS promptly.

• Report All Income: Even side gigs or freelance work must be included.

Conclusion

Your first tax filing is your introduction to the IRS, establishing your presence in the U.S. tax system. While this brings responsibilities, it also opens doors to financial benefits like refunds, credits, and a reliable financial record.

Ready to take the leap into tax season? Schedule an appointment with The Tax Shack today! Our team will guide you through your first filing and ensure every credit and deduction is maximized.