Remember back when you were still working your first or second job and had to navigate the tax waters for the first time? (Or maybe that’s you now – deep breaths. Keep reading!) It may have seemed like an overwhelming process as you tried to figure out what form went where, what a “deduction” was, and how you could receive the biggest return possible without drowning in paperwork. The truth of the matter (as you may have learned by now) is that no matter your age or experience, taxes can still be confusing. And over the years, you may find that your taxes, just like your interests and expenses, will change and evolve – after all, what’s relevant for a 25-year-old probably isn’t for a 75-year-old. At Polston, it’s our goal to make filing your taxes a breeze. So, over the next few weeks, we’ll be discussing tax tips for different age groups. First up: 20-somethings.
For many 20-somethings it may be the first time you live on your own, work a full-time job, and navigate rent or home ownership. No matter your path, you’re bound to experience a lot of “firsts.” That will probably include filing your own taxes for the first time. As you begin to master those newfound “adulting” skills, there’s no better time to get organized. Save those receipts, buy yourself a file box or cabinet, and hold on to paperwork. If it’s important enough for your signature – it’s important enough to file – at least for now.
Coordinate with Your Parents
If you’re a full-time student under the age of 24, your parents may still be able to claim you as a dependent – and that affects your own filling status. So be sure to coordinate with them, especially if you’re still living with them or still receiving financial support. If you’re under 24 but living on your own and earning above a certain income, however, then you may need to file on your own.
Update Your Name
Recently married and changing your name? Don’t forget to notify the Social Security office. You’ll need to do so before you can update your driver’s license, passport, bank records, and any other important documents, and if you forget to change your name legally, your tax return might get kicked back to you. Websites like Hitch Switch can help with the transition.
Tax Breaks – Know Where to Deduct
- Education and student loans: Good news for those of you with student loans – student loan interest is eligible for a deduction up to $2,500. Other education-related credits include the American Opportunity Tax Credit, which could also earn you a credit of up to $2,500 for your first four years of college, so make sure you do your research.
- Tax-efficient investing within 401(k)/IRA: You may already be taking advantage of your 401(k) and/or IRA (Roth or traditional depending on your income). But it’s important to ensure that you’re investing in a tax-efficient way within your 401(k) or IRA. Remember this simple tip: High-yield investments should be in a 401(k) or IRA, while low-yield investments, tax-exempt bonds, or international investments are better off in a taxable account. (And if you can only contribute to one, go with the tax-advantaged account first.)
- Use Roth IRA to save for a home, wedding, or travel: Big plans mean big expenses and chances are, retirement isn’t even on your radar yet. So why not start saving in a Roth IRA? That compound interest is a 20-something’s best friend.
- Mortgage interest for new homes: Did you recently purchase a home? If you’re a millennial or gen-Z, your home mortgage interest may be eligible for a tax deduction. You can also check out IRS.gov to see if other home-related expenses, like energy-efficient improvements, are eligible for credits.
We hope these tips make your life a little bit easier come tax season. But if your head is still swimming, no worries – we’re here to help! Be sure to browse our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857!