Tax-time Strategies for 20- and 30-Somethings
Finally, a benefit to being broke.
So, what should 20-30 somethings be concerned with when it comes to taxes?
"One of the biggest issues I've encountered in dealing with Millennials relates to tax withholding," says Abbott. "It's very common for Millennials to have multiple jobs. Frequently they assume that if they have three jobs and are paid as an employee at each job, their employers will withhold the proper amount of tax. What they don't realize is that each employer will withhold the proper amount of tax for that job. The employee needs to be aware that they need to carefully review their income and withholding in aggregate -- either on their own or with a tax advisor -- to ensure there are no surprises at the end of each year."
This issue seems to be increasing more and more as it is much more common for Millennials to have several jobs, instead of the one job that previous generations have had.
According to our experts, here are the five biggest tax breaks Gen Y filers might be missing:
- Deduct charitable contributions: Millennials are known for their benevolent world-view: volunteering at a local soup kitchen, or helping out now and then with Habitat for Humanity. You can write-off out-of-pocket expenses related to your charity work - and even small amounts add up. "For those who are able to itemize deductions, charitable contribution tracking is one item that is overlooked by Gen Y," says Mary Beth Storjohann, a Certified Financial Planner - and Millennial -- in San Diego. "If they're donating cash, clothing, or any other type of possessions, receipts and proof of donations should be kept in a file or stored online in order to reference for tax deductions." If your contribution totals more than $250 to one organization, you'll need an acknowledgement from the charity documenting your donation. Vehicle expenses count, too. You can deduct 14 cents per mile, plus parking and tolls paid in your charitable travels.
- Deduct job-search expenses: "If you're spending money in a search for a new job in the same occupation that you have now and the total cost of your expenses exceeds 2% of your Adjusted Gross Income, you may be able to deduct the amount that exceeds the 2% limit," adds Storjohann. "This means you should keep track of what you pay for employment agency fees, resume preparation and mailing, phone calls, and in some cases, travel and transportation expenses." And you can take this deduction even if you didn't land a new job. Think Adjusted Gross Income is just plain gross? Find a qualified tax advisor for help.
- Deduct student loans: Here's a tax deduction you can take for something you don't even pay for. If your parents help out with your student loans, the IRS treats the money as if it was given to you, and then you made the payment. If they don't claim you as a dependent, you can deduct up to $2,500 of student-loan interest paid by your parents. And you don't even have to itemize to claim this deduction.
- Take advantage of married life: "If you're newly married, moving expenses of one spouse into another's home are generally not tax deductible, but if both parties are forced to move because of a new job, then moving expenses are deductible," advises John-Paul Valdez, a financial expert in Palm Springs, Calif. and contributor to the advice website Pearl.com."Keep in mind that you are "married" for income tax purposes even if you were married as late as Dec 31, 2012," adds Valdez. "Going the married--filing-jointly route is to your benefit. Filing jointly means that you will be able to claim several credits, including the earned income credit, household/dependent care expense credit, adoption assistant credit and more."
- File a return! "The biggest mistake any taxpayer, Gen Y or not, can make is not filing a return when they are required to file a return," Tim Abbot warns. So, fire up the coffee pot and get to work. April 15 is around the corner.
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