Eleven (11) Tips to Help Millennials Get Through Tax Season Unscathed
Filing taxes isn’t easy for anybody, but it’s even less so for millennials, who have no experience with the annual tradition, and who are undergoing an onslaught of life transitions that impact their filing status and who are frequently eligible for many of the ever-changing array of deductions and credits. If you are a millennial and you want to get the most of your tax return this year, you’re going to have to be strategic in your filing. Here are eleven (11) things you and your parents can do to work together to leave as much money in your bank account as possible:
1. Coordinate With Your Parents. If your parents still claim you as a dependent, then that affects your filing status. If you’re under 19 or under 24 and are still enrolled in school, are still living at home with them, receive support from them and earned less than $3,900, you would still be considered a dependent, and they have every right to claim you. Otherwise, you might want to consider filing as an Independent.
2. Take Advantage of Education Credits. There are several education-related credits out there, with deduction potential of up to $2,500 for many of them. Check with your tax-preparer to see if you qualify for any.
3. File Electronically. 90% of taxpayers do, because a) its easier and b) it reduces the amount of errors. Also, most e-file software is free.
4. Deduct Your Moving Costs. If you moved a certain distance for a new job, those moving costs are deductible. While you don’t need to itemize this deduction, you do need to work in the new job full time for at least 39 weeks for the deductions to apply. This deduction applies to new college graduates too.
5. Deduct Your Mortgage Interest. If you’re a millennial who bought a new home, congratulations are in order! But on a more serious note, your mortgage interest may be deductible. Check IRS.gov to see if you’re eligible.
6. Take Advantage of Child Related Deductions. Having children qualifies you for an array of credits and deductions, including childcare and tax-advantaged college savings accounts. Again, check IRS.gov to see which credits and deductions you’re eligible for.
7. Update Your Name. If you’ve changed your name in the past year, or since last filing, don’t forget to inform the social security office. Otherwise, problems may arise with your tax return, and you’ll have to file again.
8. Accurately Estimate Your Withholding. While there is nothing wrong with having a large portion of your paychecks withheld throughout the year only to receive a large refund come tax-season, doing so is similar to giving the IRS a free loan throughout the year. To make your withdrawal amount more accurate, go through your W-4 and update it accordingly to reduce your withholding.
9. Check Out the Earned Income Tax-Credit. The EITC is something not many people know about, and therefore, don’t take advantage of. This credit is worth between $496 and $6,143, depending on your situation. Check out the EITC table to see how much you qualify for: http://www.irs.gov/Individuals/EITC-Income-Limits,-Maximum-Credit–Amounts-and-Tax-Law-Updates
10. Don’t Make Mistakes. We know, hard to do, considering many people don’t make mistakes on purpose. But making mistakes on your taxes could mean the difference between a $600 tax return and a $6,000 tax return. The most common mistakes taxpayers make include missed deductions and credits, so if you’re filing on your own, make sure you know what you’re doing.
11. Max Out Your Retirement Credits. Don’t have a savings account? Maybe it’s time you opened one. For starters, many savings accounts are tax-deferred, such as a 401(K). If you’re in the beginning of your career, you might want to consider a Roth 401(K) if it’s available to you, as you’ll be in a lower tax bracket and therefore, pay lower taxes than later on, when you might face a higher tax rate.
Additionally, if your goal is to retire at age 65 with $1 million, then you’ll need to save $361 a month—assuming you’re 20 years old. If you wait until you’re 30, you’ll have to save almost $700 a month, and waiting until you’re 40 will require a monthly savings of $1436 per month.
You’re never too young to start taking your taxes seriously. After all, taxes are something you’ll be dealing with for the rest of your life. To get off on the right foot with the IRS, visit http://www.irsallstar.com/our-services#16 to see how we can help you prepare your taxes this year and every year forward.