5 Essential Tax Tips for Young Professionals

By Michele Glasgow posted 03-28-2016 02:56 PM

  
By  |   Mar, 16, 2016   |   Featured, Money  |   No Comments

Whether you’ve been filing taxes for 5 years or 15, it never seems to get any easier. Maybe it’s the fact that a whole year goes by between each tax season—plenty of time to forget everything you learned about W-2s, deductions and tax credits the year before (not to mention your e-file password).

Meanwhile, the older you get, the more complicated your tax situation tends to be. As you earn more income and achieve new financial milestones, you face questions like when to itemize tax deductions, what’s considered income for tax purposes, and how/when to write off interest payments on your student loans or mortgage.

You don’t have time for a formal education on IRS code—you just need a few quick-and-dirty tax tips to ensure you maximize your tax refund (or at least minimize what you owe). Here’s a roundup of sage tax advice for young professionals from financial experts to make your 2016 tax return a breeze. Or just less terrible than usual.

1. Know the new deadline.

Everyone knows Tax Day is April 15th, so it may surprise you to learn that this year, taxes are actually due on Monday April 18th, instead.

Why the delay? “Traditionally, Tax Day is April 15 unless that date falls on a Saturday or a Sunday, in which case the due date for federal income tax returns gets pushed ahead to the next business day,” writes Kelly Phillips Erb at Forbes. “In some years, the District of Columbia observes Emancipation Day on the same day as Tax Day, which affects the nation’s tax filing deadline – so the deadline gets moved.”

Since Emancipation Day is on a Saturday this year, it gets pushed back to Friday April 15th, and Tax Day 2016 moves ahead to Monday April 18th—and you have a couple extra days to file your return.

 

2. File early anyway.

However, it’s probably best not to use this delayed deadline as an excuse to procrastinate. According to personal finance guru Dave Ramsey, the earlier you file taxes, the more time you have to do it right—for example, making sure you’ve claimed all the deductions you’re eligible for. He says that filing early can even help protect you from identity theft, since the IRS will accept the first return they receive and kick out any subsequent returns filed.

And before you dismiss this as an unlikely possibility, consider that the Federal Trade Commission reports that tax return-related identity theft incidents have gone from 15% to 43% of all identity theft complaints in just three years. If you are the victim of tax return identity theft, getting it sorted out can be a huge headache and will obviously delay your refund (if you have one coming to you). Save yourself the potential stress by getting your tax filing over with ASAP.

 

3. Standard or itemized deduction?

There comes a point in every young professional’s life when you start to question whether the standard deduction is enough for you. For 2015 taxes, the standard deduction amounts are $6,300 for singles and married couples filing separately, and $12,600 for married couples filing jointly.

Amber Gilstrap from MoneyUnder30 gives a simple explanation for when to itemize and when to take the standard deduction. “Itemized deductions are comprised of various types of certain expenses that you incur throughout the year (things that are—surprise, surprise—“tax-deductable”)” she explains. “If the total amount of these expenses is greater than the standard deduction amount, you should itemize instead of taking the standard deduction.”

A great way to weigh the standard vs. itemized option is to use a tax deduction calculator, which lets you input expenses for the most common itemized deduction categories—things like charitable contributions, medical/dental expenses, state and local income taxes, property/real estate taxes, and home mortgage interest.

 

4. Don’t forget the most-missed tax deductions.

Stacey Leasca at Elite Daily wanted to know how millennials can maximize their tax refunds, so she turned to Lisa Green-Lewis, a CPA and tax expert with TurboTax, to find out which deductions young professionals tend to miss.

“A lot of (millennials) go through a lot of life changes, and those life changes can be worth big tax deductions,” says Green-Lewis, who points out that job search expenses and expenses related to moving for a job more than 50 miles further than your previous job could both potentially be deductible.

And if you’re paying interest on student loans, don’t forget that interest may be deductible even if you’re not itemizing your deductions. However, you can only claim the deduction if you make less than $80,000 year as a single filer and no one else claims you as a dependent on their return. “I always recommend that parents and students discuss who’s going to get this deduction,” says Green-Lewis. “If the parent is claiming the child as a dependent, then they would get the education benefits.”

 

5. And check out the relevant tax credits.

There are a number of tax credits that tend to be applicable for young professionals—Rebecca Lake outlined a few of them in a recent article for SmartAsset. First and foremost? The Retirement Saver’s Credit, which incentivizes people to put money into a retirement account. The caveat is that you can’t make more than $30,500 as a single filer to qualify, but as Lake points out, “When you’re still in your 20s or your early 30s, you’re probably not making a lot of money. If you’re under the credit’s income threshold, you can pad your retirement account and reduce your tax liability at the same time.”

Lake also highlights the Earned Income Credit, which is “perfect for millennials who aren’t bringing in big bucks,” and the Lifetime Learning Credit for those who are paying out-of-pocket to earn a degree.

 

6. Filing taxes in the gig economy.

If you’re one of the growing number of independent contractors whose income is more 1099 than W2, you probably already know your taxes have taken a turn for the complicated. “If you work for others on assignment or by the hour and not as an employee, you are probably a gig worker,” says Jean Murray at About Money. “That means you own your own business. That’s both good news and not-so-good news.”

Murray tries to keep the not-so-good news at bay by providing “gig workers” with simple tax rules, like keeping business and personal expenses separate, maintaining excellent records of business expenses and getting help from a good tax professional.

And, whatever you do, don’t forget to withhold and pay your own taxes on a quarterly basis. “Since full-time employees have their federal income tax (including Medicare and Social Security) automatically deducted from their salaries, independent contractors must do this for themselves,” says William Craig at Forbes. Skipping this step can lead to penalties and getting hit with a big tax bill you can’t afford come Tax Day.  

 

Where to find tax help

Filing taxes can be overwhelming, complicated and even scary at times, so don’t be afraid to ask for help if you need it. The IRS offers free Volunteer Income Tax Assistance (VITA) for people who make $54,000 or less. Also check out the Free File Alliance, which provides free tax-filing software options for individuals. Many of these programs offer some guidance, which may be all you need to get your taxes filed—and off your plate for another glorious year.

  ABOUT Dan MacklinDan Macklin is a co-founder of SoFi and VP of Community & Member Success with responsibility for maximizing the overall experience for SoFi’s growing community of members. Dan holds an M.S., Management degree from the Stanford Graduate School of Business where he was a Sloan Fellow. He also holds a B.A. in Business Economics from University of Durham in England.

 
0 comments
455 views

Permalink