Millennials fear their taxes.
Four out of every five young adults say they worry about making a mistake on their 1040, and they have good reason. Facing an increasingly byzantine tax code, with little money to seek out professional help and an IRS that ignores one out of every three callers, a lot can go wrong when April 15 rolls around. (The IRS' reticence, it should be noted, is the result of budget cuts that have forced the agency to lay off 17% of its staff since Republicans took control of Congress in 2010.)
An individual's tax return says a lot about where they are in life -- personally, professionally and financially. It's why they're the first step in so many legal investigations and absolutely critical to financial disclosures. For young people, that means that filing taxes comes with a series of potential pitfalls and issues that older and more settled taxpayers just don't have to worry about.
Young adults can make some very specific mistakes on their taxes, and that's never been more true than for millennials. Here are five to watch out for in the coming months:
Forgetting to File
Everyone must file taxes if they meet what's called the filing threshold, generally calculated by adding the standard deduction with one exemption. For 2017, that threshold is $10,400. Anyone who earned more than that must file a tax return.
Anyone claimed as a dependent on someone else's tax return, such as many college students, has a lower filing threshold, because they can't claim an exemption for themselves. For 2017 taxes, that threshold is $6,350. That doesn't just apply to adults either. According to the IRS, even children who earn more than the cutoff have to file and pay their taxes.
Many people don't know this.
"Probably the biggest issue with young filers, perhaps you just graduated from college or you're in college and you're working, is simply not knowing that you have to file," said Jackie Perlman, Principal Tax Research Analyst with H&R Block's Tax Institute. "If you just talk to young people very often they'll say, 'oh, you know, my parents take care of that,' or 'you don't have to do that.' People have a lot of funny opinions. But the answer is, if your income is over a certain level, yes, you have to file."
Spending Too Much
Whether they can afford it, millennials will often seek tax advice out of sheer confusion or frustration. When that happens, said Lisa Greene-Lewis, a CPA with TurboTax, they frequently pay far too much.
"One of the biggest mistakes that young people make is taking their taxes to someone and spending too much, when they have a simple tax return and can do it for free," Greene-Lewis said. "There are over 60 million taxpayers who are eligible to file a 1040A or 1040EZ -- many of whom are young and first-time filers -- who could be eligible to file for absolutely free."
Online services (such as those offered by Greene-Lewis' TurboTax Online or Perlman's More Zero) can often provide young taxpayers with all the help they would need to file their taxes, rendering unnecessary the hundreds of dollars someone with a straightforward return might spend on a tax preparation service. Even without relying on these services, many millennials will qualify for the 1040EZ, a one-page form that requires little effort on the part of the filer.
Among people aged 18 to 34, less than half say they're likely to do their taxes themselves, according to data from H&R Block. For the rest, this is a potentially enormous and unnecessary expense.
Missing Deductions, Credits and Refunds
Students currently enrolled in school have access to both educational expense deductions and a credit called the Lifetime Learning Credit.
Graduates still paying off their student loans (a cohort that describes most matriculated students since the baby boomers) can deduct up to $2,500 in interest paid on those loans every year.
Many young adults don't even know about these benefits.
It is, Perlman said, "another thing that young people might miss."
"Another part of it," she said, "is perhaps you're in under the filing requirements, but you should file anyway because you can be entitled to a full refund of taxes withheld. So you're missing out on not filing because you'll get that money back."
Young people who aren't careful can often leave hundreds, if not thousands, of dollars on the table. By not taking care to catch their eligible credits and deductions, they might miss out on the greatest gift tax season has to offer: A refund check from the government.
Not Disclosing Income
Almost everything that increases your net worth counts as income. Find $5 lying on the ground? It's income. Get a debt forgiven? It's income. Win an iPad at a raffle? That's about $800 worth of pure income.
Many young adults don't always realize this, and it's a particular problem in the age of Airbnb, Lyft and Uber.
"In the last-minute rush, taxpayers often forget important tax documents," Greene-Lewis said. "Make sure you have all of your important forms like W-2s and 1099s in front of you when you sit down to prepare your taxes. If you have multiple employers, or if a W-2 or 1099 goes missing, you may end up accidentally forgetting to disclose all your income."
Scattered and part-time income can easily fall by the wayside. Whether it's money from renting out a spare bedroom or the earnings from an Etsy shop, in the internet age it's easier than ever to have multiple revenue streams. Leaving those off the 1040 is how audits happen.
Mistakes of Geography
Contrary to popular belief, millennials are actually one of the most sedentary generations on record. According to Pew research data, in 2016 roughly 20% of adults aged 25 to 35 reported having lived at a different address one year prior. At that age, approximately 25% of the members of Generation X and the Baby Boomers reported having done the same.
Nevertheless, young adults are still one of the most mobile demographics in the country. Even with relocation at a nadir, nearly four in five young adults still report having moved within the past 12 months, and this is a generation defined by rental apartments and delayed marriages.
That can wreak havoc when it comes to tax preparation and filing.
Someone who has lived in multiple states will owe taxes to each of those state governments in proportion to the amount of time spent living and working there. Someone who has lived in one state but worked in another will often have to deal with multiple governments trying to capture their income, while someone who moves to a city may not realize that many cities levy local income taxes.
Moving can make life a lot more complicated when it comes to paying taxes, so young adults are particularly at risk of making mistakes.