By Hal M. Bundrick
Remember your first paycheck? How surprised you were at all the taxes that came out of your pay? And then, when you had to start filing taxes, somehow you got a refund! What the what? Money back? You started looking forward to filing your taxes, didn't you? You did the little "I'm gonna get a tax refund check" dance, didn't you? And then you made more money, kept filing the short form, and within a few years...no refund. In fact, you owed money to the IRS!
Welcome to the Other Side.
Also see: Your Most Important Tax Documents -- and What to Do If You Can't Find Them
Just like the rest of us, Millennials worry about taxes.
"The thing that I am most worried about when it comes to taxes is how much more I going to have to pay each year," says Elizabeth Samolis, a student in Maryland and graphic artist for 20Something Magazine. "I have always paid my taxes and on time, but my taxes just keep going up. And for what? As my taxes continue to rise, we hear more and more about billion dollar corporations paying zero taxes and getting a refund. What is fair about that?"
Oliver Gray is another Gen-Yer who worries about taxes.
"From personal experience, a lot of my friends seem really concerned about filing incorrectly and getting in trouble -- or even audited," says Gray, 27, a contract employee working with the U.S. Treasury. "Taxes seem pretty overwhelming before you get acclimatized to all the little boxes on all those forms, and I think a lot of young people quit before they begin. They just throw some money at TurboTax or H&R Block and hope the problem fixes itself."
The good news: most Gen Y filers don't have to worry about math mistakes or getting audited by the IRS. Maybe your parents have to sweat the possibility of an IRS call, but you - not so much.
"The IRS routinely sends out notices for math corrections and omitted items," says Tim Abbott, a CPA in Lombard, Illinois. "This is much more common than people realize, and it rarely triggers an audit. The biggest factor in being selected for examination by far is still a taxpayer's adjusted gross income. Those earning more than $200,000 a year have a substantially higher chance of being audited than those earning $1 to $200,000."
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.