- 5 Tax Mistakes Made by Millennials
- 1. Filing as a Dependent When You’re Independent (and Vice Versa)
- 2. Skimping Out on Retirement Savings
- 3. Forgetting to Deduct Student Loan Interest
- 4. Miscalculating Deductions for the Cost of a Mandatory Military Relocation
- 5. Withholding Too Much for Taxes
- 20 Money Saving Tips for Millennials (Realistic Ways)
- 1 – Eliminate Debt
- 2 – Create a Budget
- 3 – Side Hustle
- 4 – Retirement Accounts
- Traditional IRA vs. 401K Plan
- What is the 401K Plan and how does it work?
- What is a Traditional IRA and how does it work?
- 5 – Automation
- 15 More Ways for to Save Money for Millennials
- Final Note on Money Saving Tips for Millennials
- If you enjoyed this article, then you’ll love these:
- Top Tax Tips for Millennials – Deductions and Credits for Young Tax Filers
- Tax Deductions and Tax Credits for Students and Recent Grads
- Deborah Sweeney, CEO of MyCorporation
- Meisa Bonelli, Managing Partner of Millennial Tax
- Bill Hendricks, Co-founder of Common Form
- Jayson Mullin, Co-Owner of Top Tax Defenders
- David Ruzzo, Owner of Precision Tax Income Tax Service
- Understanding the Taxes of Saving for Retirement
- Vincenzo Villamena, Managing Partner of Online Tax Man
- Garrett M. Prom, Founder of Prominent Financial Planning
- Christopher McCauley, President of Whizkins
- Jonathan K. Duong, Founder of Wealth Engineers
- Austin G. Netzley, Founder of YoPro Wealth
- Matt Becker, Founder of Mom and Dad Money
- Tips for Millennials That are Side Hustling
- Jody L. Padar, Principal of NewVision CPA Group and Xero Partner Accountant
- Alex Parker, President of Brand Strategix
5 Tax Mistakes Made by Millennials
Millennials, who range in age from 25 to 40 in 2021, are in a life phase of ongoing change and evolution — from students to graduates to independents to spouses. Navigating the in-betweens of these many major milestones is no cakewalk.
Find Out: What Are the 2020-2021 Federal Tax Brackets and Tax Rates?
In addition to the standard financial commitments that accompany such major milestones, millennials must remain mindful of how their ever-shifting circumstances influence their tax obligation.
That’s especially true for tax year 2020, when the coronavirus pandemic drove 2.7 million U.S.
adults to move in with a parent or grandparent in March and April alone, according to a Zillow analysis of Census data.
Here are five common tax mistakes made by millennials to watch out for.
1. Filing as a Dependent When You’re Independent (and Vice Versa)
When it comes time to file your taxes, it’s worth it to double-check with your parents before signing on the dotted line. If you still live at home or get any kind of financial assistance from your parents, be certain that you’ve elected the right filing status.
Parents can claim qualifying children who were under age 19 on Dec. 31, 2020 as dependents, or under age 24 if they were full-time students who lived with their parents for more than half the year, and the parents provided more than half of their support.
In the event you incorrectly claim yourself as a dependent, your parents will miss out on any dependent tax credits or education deductions or credits they might legitimately qualify for.
If, on the other hand, you incorrectly forgo claiming yourself as your own dependent, you’ll disqualify yourself from claiming deductions and credits you might be entitled to, and you might lose out on part of your standard deduction as well.
The standard deduction — that’s the amount by which you reduce your taxable income if you don’t itemize deductions — is $12,400 for tax year 2020. The maximum you can claim as a dependent is $1,100 or your earned income plus $350, up to a maximum of $12,400, whichever is larger.
If your parents claim you, you must check the box on your own tax return that indicates someone else has claimed you as a dependent. The box is located in the Standard Deduction section of Form 1040.
Read: Doing Your Own Taxes? Make Sure You Follow These 15 Tips
2. Skimping Out on Retirement Savings
Most millennials worry that Social Security won’t be there for them when they retire, and 20% say that COVID-19 has reduced their confidence in their ability to retire comfortably, according to a study by the Transamerica Center for Retirement Studies. Yet, 38% aren’t yet saving for retirement. If you’re among that group, there’s no time the present. Start now, and you might even qualify for a break on your 2020 taxes.
Two common types of retirement savings are individual retirement accounts and employer-sponsored 401(k) plans. Both reduce your taxable income.
You can contribute up to $6,000 per year to an IRA account, even if you participate in another retirement plan at work[x].
As long as your modified adjusted gross income is $65,000 or less ($104,000 or less if you’re married filing jointly), you can deduct your whole contribution, up to the $6,000 limit.
The deduction phases out at $75,000 MAGI ($124,000 for married joint filers). You have until May 17 to make contributions that you can deduct on your 2020 tax return.
Please note that while the IRS has announced that the federal income tax deadline for individuals is May 17, 2021 for the 2020 tax year, state deadlines have not changed. So make sure to confirm your state’s due date before you file.
Contributions to a 401(k) work a little differently. They’re deferred from your paycheck before taxes are taken out, so you never see the money and you don’t have to claim the deduction. It’s too late for contributions to reduce your 2020 taxable income, but this is the perfect time to start contributing — or increase your contributions — for next year.
Don’t Forget: Tax Year Deadline Dates You Need To Know
3. Forgetting to Deduct Student Loan Interest
One of the ways the U.S. government supports higher education is by giving those with student loans a tax break how much interest they’ve paid over the course of the year. Unfortunately, millennials, the student loan poster children, might forget to claim this deduction.
You might be able to deduct student loan interest payments up to $2,500 on a qualified student loan, according to the IRS. most deductions and credits, there is an income limit to claim this deduction.
It begins to phase out at $70,000 adjusted gross income for single filers ($140,000 for married couples filing jointly) and is eliminated entirely at $85,000 AGI ($170,000 for married joint filers).
It’s worth noting that you don’t have to file an itemized return in order to qualify for this deduction.
4. Miscalculating Deductions for the Cost of a Mandatory Military Relocation
Prior to 2018, taxpayers were allowed to deduct moving expenses for qualified relocations for their work. Although the relocation deduction was eliminated for most taxpayers, it’s still available to active-duty members of the military.
The deduction allows you to claim unreimbursed moving expenses you incurred due to a military order that resulted in a permanent change of station. The following relocations qualify for the deduction:
- A move from one permanent post to another
- A move from your last post to your home or a nearer location in the U.S.
Allowable expenses include reasonable costs of household and personal items, storage, lodging (but not meals) and other expenses directly related to your move.
The deduction is an adjustment to your income, so you don’t have to itemize deductions to claim it.
Check These Out: 8 New or Improved Tax Credits and Breaks for Your 2020 Return
5. Withholding Too Much for Taxes
This last one is a mistake that many people, not just millennials, are guilty of making. Come tax time, we’d all rather get a refund than owe money to the IRS, but good financial practices suggest that we try to keep our refund amount as close to $0 as possible.
For tax year 2019, the average tax refund was $2,888, as reported by the IRS in July 2020.
This means people are giving the government an interest-free loan, said Certified Financial Planner Scott Alan Turner.
Millennials who adjust their W-4 withholding to where they get as close to zero on their refund as possible will take home extra cash they can apply towards debts, savings or investing, Turner added.
If you aren’t sure how to set your W-4 withholdings, the IRS has a calculator to get you started.
More From GOBankingRates
Daria Uhlig contributed to the reporting for this article.
Last updated Mar. 18, 2021
This article originally appeared on GOBankingRates.com: 5 Tax Mistakes Made by Millennials
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20 Money Saving Tips for Millennials (Realistic Ways)
Are you trying to figure out the most realistic money saving tips for you to use today?
Millennials are a unique generation to have grown up with technology nearly every step of the way. Not only that, Millennials were conditioned to go to college and get a degree.
Times have changed and educated Millennials are struggling to find high enough wages to help pay for the high cost of education.
That being said, having grown up with technology it has allowed for many ways to save money and generate extra revenue. This article I will go into detail several ways Millennials can save money and squeeze every dollar their budget.
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1 – Eliminate Debt
The number one factor that will slow your ability to save is debt. If you are looking to get serious about saving then plan on eliminating your debt first, that way nothing stands in the middle of you and your most important wealth building tool, time.
There are several ways to eliminate debt and a good place to start is by researching.
You can also grab the Debt Free Planning Workbook here to help you get debt quickly.
Dave Ramsey is a popular name in the personal finance space and it is a great place to start. From here, you can see the plan he’s proposed for his audience and tweak it to fit your needs.
2 – Create a Budget
An effective way to save money is directing where your income goes in the form of a budget. This is typically done each paycheck or at least once a month, planning where you can spend your money and when to save you money.
Not only does budgeting lay out your plans for the month, you can also see the places you can curb spending such as eating out or entertainment.
There are several apps and websites on the market to help you start a budget. For many, simply opening an excel file and creating a custom template is the best way to go. Also,printing out a sheet and hand writing a budget is also an effective way to budget.
You can also grab the Savings Goal Workbook here to help you get started saving quickly and easily.
Whatever works best for you, find it and utilize it going forward.
3 – Side Hustle
Growing in popularity is the side hustle, which is when you utilize your free time to generate more income.
For example, you may work a 9 to 5 office job, but when you get home you sell homemade blankets on Etsy, work on starting your blog, or grow your affiliate marketing income.
Having a side hustle is an effective way to generate income and help boost your savings potential.
Just mentioned was Etsy, which is a site you can find a variety of homemade crafts or unique items. Other places to really begin a side hustle include Fiverr.com, Upwork.com, or create your own website and be`gin your business that way.
While implementing a budget and increasing your income, you can truly boost your savings potential.
Read: Is Your Side-Hustle a Hobby or Business for Taxes?
4 – Retirement Accounts
If you’ve already saved up some money but are now looking to save for retirement, it is important to understand the various retirement vehicles out there.
For this, we’ll go over two of the most popular and widely used, and those are a401k and a traditional IRA.
Traditional IRA vs. 401K Plan
Both are similar in nature but have a few differences. Let’s take a closer look.
What is the 401K Plan and how does it work?
First off, a 401k is offered through your employer and utilizes pre-tax dollar to fund the account. Within the 401k, there are funds you can invest your money into that are pre-determined by the plan sponsor.
Once the funds are deposited into the account, they sit there until you retire.
You are able to withdraw funds early but you will incur a 10% penalty for early withdraw, along with having to pay taxes on the money.
What is a Traditional IRA and how does it work?
An IRA is similar in that it uses pre-tax dollars, but the main difference is that an IRA is not offered through an employer and anyone can open it.
Also, within an IRA you have the ability to select from a wider range of equities or mutual funds, giving you more flexibility in how your money grows.
Keep in mind the annual contribution limits and should you want to invest more, you will ly have to open a traditional brokerage account.
5 – Automation
Lastly, a way to help you save is to automate the process as much as possible. With the growth of financial technology, we can nearly automate anything we choose. That being said, automating deposits into a retirement account or automatic bill pay will allow you to say on top of the game.
This creates a habit of saving, but also doesn’t give you a chance to spend the money. Similar to the old phrase sight mind, if you never see your money then you have a tendency to feel less pain.
This is one of the top money saving tips for millennials!
15 More Ways for to Save Money for Millennials
- Set your budget up the right away
- Open up a bank account that’s only dedicated to saving for your vacation
- Set up an automatic transfer to your savings bank account (do weekly or bi-weekly transfers)
- Start using cash to pay for your daily expenses (think of the envelope system that Dave Ramsey speaks about and only budget a certain amount of money for day-to-day items…once it’s gone you have to wait for the next month to take more cash out)
- Take a break from buying coffee (instead make your own coffee at home)
- Keep your monthly food budget in check
- Become a meal planning pro
- Find gym alternatives to save money (work out from home or ask for deals at your current gym)
- Eat out less
- Remove big expenses from your budget your outrageous rent/mortgage car (I know I’m being blasphemous right now, but could you sell your car and buy a cheaper car?)
- Get a part-time job
- Car pool to work with your co-workers (you guys can alternate the weeks of who will drive into the office or location)
- Download a savings app
- Rent out a room in your home
- Stay motivated while saving
File with Ease from Home Today!
Final Note on Money Saving Tips for Millennials
Millennials have many advantages within reach to help grow and put in place the proper habits to save efficiently. Saving is necessary but understanding how to save is important as well.
If you are saving for an emergency that’s one thing, but saving for retirement is completely different. Regardless, begin saving and I’m sure you’ll begin seeing a noticeable change in your financial health.
I hope this breakdown of the five easy money-saving tips help you discover some additional ways to grow your finances this year.
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Let me know what’s your favorite money-saving tip in the comment section below. If you want more handy money and tax tips, then feel free to check out my latest articles here.
If you enjoyed this article, then you’ll love these:
Get started onyour taxes early here!
Until the next money adventure, take care!
Disclosure Statement: All data and information provided on this site is for informational purposes only. The Handy Tax Guy makes no absolute representation to the correctness, mistakes, omissions, delays, appropriateness, or legitimacy of any information on this site. **Note: Each client circumstance will vary on a case by case basis**
(Original Article Date: December 10, 2018/Updated August 18, 2020)
Top Tax Tips for Millennials – Deductions and Credits for Young Tax Filers
Millennials face a different tax situation than most filers. They are at a challenging point in their lives:
- In college or just graduated
- Just starting out at a first job
- Just starting to save or invest for retirement
- Most rent, but some are looking to buy their first homes
- Many are side hustling to make ends meet
All of these traits of millennials make for interesting taxes right now. And with less than a month to go until taxes are due, I thought I’d ask as many experts as I could find what their top tax tips would be for millennials doing their taxes for the first time.
Tax Deductions and Tax Credits for Students and Recent Grads
A lot of millennials are students and recent grads, and you potentially qualify for a bunch of different tax deductions and tax credits, your individual situation. Here are some tax deductions for students that you should pay attention to.
Deborah Sweeney, CEO of MyCorporation
Since I went to law school, I know a thing or two about paying down student debt. My first tip is to look into, and write off, every college tuition deduction you can. As a student, you can take advantage of the IRS’s tuition and fees deduction, which could mean a benefit of up to $4,000.
You should also get into the habit of saving documents related to possible deductions – receipts for clothing donations, for example – so you can be sure you get your maximum refund.
Finally, when the IRS does send you that check, please use a good chunk of it to help pay down your student loans; anytime you come into money, you should use it to lower that debt.
Meisa Bonelli, Managing Partner of Millennial Tax
Nearly 20 million students attend college each year and close to 60% of students (approx. 12 million) borrow money to pay for school. School loan debt, especially for post bachelors and doctoral education is something students have to pay for long after they’ve attained they’re degrees, sometimes 30 years later.
The best way to get into the habit of the responsibility of paying this down is to get a head start while in school.
Paying this while in school can offset tax liability which may be good if you’re working full-time while in school, especially for individuals that qualify for the American Opportunity Tax and Lifetime Learning credits.
Millennials need to understand that paying even the smallest amount consistently over a four year degree can dramatically lessen the burden of student loan debt later in life. If a student is required to file taxes and receives a refund, I would advise using 10 – 25% of refund monies to pay student loan interest at the very least.
Bill Hendricks, Co-founder of Common Form
Don’t over pay to file your simple federal tax return, use free tax software (but make sure it’s really free). Most young adults have relatively simple taxes and many can file Form 1040EZ. Many tax software providers offer free filing of simple federal returns, but most will try to up-sell you along the way.
The 1040EZ is perfect for many young adults. They’d be over served and over charged by using TurboTax or a tax store.
My partners and are ex-Intuit employees who founded Common Form in part due to our distaste for TurboTax’s practice of starting a customer in a free product then upgrading and adding a bunch of stuff they don’t need, resulting in a very high price when all is said and done.
Also, use your state’s free web site to file your state income taxes. Most states that have an income tax offer a state run, free website for filing. A quick Google search will reveal if your state has one.
Beware of commercial software packages that charge up to $40 per state for something you can easily do yourself for free. As an example, California’s site is located at https://www.ftb.ca.gov/index.
Jayson Mullin, Co-Owner of Top Tax Defenders
To deduct student loan interest, you can simply write the total of your interest paid (subject to the $2,500 annual limit) on the Student Loan Interest deduction line, which appears on the front page of Form 1040 or Form 1040A. After adding your total on the form, you can subtract it from your total earnings as an adjustment to income and proceed with your return.
David Ruzzo, Owner of Precision Tax Income Tax Service
Remember that Lifetime Learning credits or the Tuition and Fees Deduction are available for college courses you take even after graduation. These can be a tax saving way of increasing your value as an employee or potential employee.
Also, if you have to move at least 50 miles to take a new job, your moving expenses may be tax deductible.
And finally, if you end up taking a job that requires you to work from home, you may be able to take the home office deduction for a home office that you use regularly and exclusively for business.
Understanding the Taxes of Saving for Retirement
Many millennials will start to think about saving for retirement in the next few years. They’ll either discover they 401k at their company, or look to save in a Individual Retirement Account. Either way, it’s important that they understand the tax implications of each decision.
Vincenzo Villamena, Managing Partner of Online Tax Man
People just leaving college (and presumably lower income) should start investing in a Roth IRA because it is more advantageous. There is an income threshold ($110k) to invest and the investment grows tax free over the lifetime of the investment.
Given that most college graduate will eclipse that 110k mark, its important to contribute before this happens and start savings towards a tax free retirement! Its also important to note that one can pull out their money from a Roth IRA (the original principal, not the gain) before their retirement without getting hit with a penalty, which would happen under a traditional IRA.
Garrett M. Prom, Founder of Prominent Financial Planning
First, take advantage of a health savings account (HSA). Contribute as much as you can to it. It can be invested, carried over to future years, and if used for health expenses at any point–never taxed. Too many do not understand it and therefore do not take full advantage of it.
Second, your earnings as you are just starting out will most ly be less than your future self with 20 years of experience. For that reason, try to invest as much as you can in Roth accounts whether that is in a Roth 401(k) or a Roth IRA.
Christopher McCauley, President of Whizkins
As a young adult, earning a first paycheck for a salaried job can be an exciting time period.
While this time period says splurge, it is at this point, young adults should also consider developing a habit in contributing to his or her company’s 401(k), or other retirement savings, account.
Not only will this practice help to lower your overall taxable income for the current tax year but it also allows you to start deferring tax on income until a much later period.
Jonathan K. Duong, Founder of Wealth Engineers
If you have earned income, contribute to a Roth IRA . Under IRS rules, anyone with earned income can contribute to an individual retirement account (IRA).
If you are a college student or recently graduated from college, you are ly in a low income tax bracket and would be eligible to contribute to either a traditional IRA or a Roth IRA.
A contribution to a Roth IRA would ly be most advantageous since the contributions that you would make would be after-tax dollars taxed at the 10% or 15% tax rate which would then grow tax-free. You could then make withdrawals during retirement without paying any further taxes.
Second, claim the Savers Credit on contributions to an IRA . In addition to the benefits of a Roth IRA described above, you might be eligible to claim the Savers Credit on your tax return on up to $2,000 of your IRA contribution.
This credit applies for individual taxpayers over age 18 with incomes up to $29,500 for 2013. However, the credit doesn’t apply if you were a full-time student during the year or were claimed as a dependent on someone else’s tax return.
Austin G. Netzley, Founder of YoPro Wealth
Use a Health Savings Account – you can deposit up to $6,150 per year of tax-deductible money. Withdraw and use for medical expenses and there are no taxes!
When you leave a job, do not take money your 401k; roll it over to an IRA… it is not cash! So many people make this mistake.
Matt Becker, Founder of Mom and Dad Money
Don’t underestimate the value of the tax deduction from a contribution to a Traditional 401(k) or IRA.
A lot of experts to preach the virtues of a Roth IRA, and yes a Roth can be a great tool in the right situations.
But even for young adults in a relatively low tax bracket, going the Traditional route can prove to be the better option over time. Just make sure you put the savings you get from the deduction to productive use.
Tips for Millennials That are Side Hustling
A lot of millennials are side hustling, working odd jobs online, or selling stuff on eBay or Amazon. All of these are important to pay attention to at tax time, and here’s some specific advice for these millennials.
Jody L. Padar, Principal of NewVision CPA Group and Xero Partner Accountant
Filing taxes is an often confusing map to navigate and all the new tax policies being enacted don’t help matters at all. A lot of college students these days are also using sites Ebay and Etsy to make extra money thus becoming “Solopreneurs” and probably are not aware of the things that can trigger an audit.
If you run a small business your home (and I mean SMALL business), you may be eligible for the New Office Home Deduction, which allows you to write off $1,500, no itemization required.
This is best for itty bitty businesses (side businesses and the ), but is not recommended if you are a consultant or freelancer working the home.
Alex Parker, President of Brand Strategix
Taxation on young adults is definitely much different than that of taxation on older adults. One of the biggest methods of reducing taxation is to change your status from employee to entrepreneur.
If you are working a position that could be turned into a consulting business, begin working independent as a contractor and establish a contractor-client relationship with your employer via an s-corporation, being that you can then increase your income through also taking on other clients if you wish to increase your income and can also experience the benefits of a corporation through not only reporting income, but also taking a percentage of the corporation’s profits as dividend distributions. With that, you will be able to pay little to no taxes on those dividend distributions (depending on your tax bracket, they will be tax exempt or taxed at a rate of 15%). You can also elect those dividends to be retained in the corporation and reinvested in the company to grow your income and business valuation further. With this route, you not only make an income from the corporation, but also can obviously sell it at a later date, allowing for a great ROI on time and monetary investments.
This is not a viable situation for everyone, however, for those who were in a situation myself, it has saved me thousands of dollars per year.
Now it’s your turn – what tax tips do you have for millennials and other young adults? Have you used any of these top tax tips?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.