7 Tax Strategies Millennials Need To Know
Written by
Adam Palasciano
Edited by
Nicholas Morine
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Millennials, the generation born between 1981 and 1996, are navigating an intricate financial landscape these days. Millennials face the reality of student loan payments and higher home costs than their older counterparts. In fact, the average millennial carries a student loan balance of $32,800 per borrower as of 2023, according to the Education Data Initiative.
So, it’s crucial for millennials to understand tax strategies in the hopes of maximizing their money and reducing their tax liability as much as possible.
Must Know Tax Strategies For Millennials
Here are seven important tax strategies for millennials to take advantage of, as reported by Medium.
- Fully understand your tax bracket: The most important aspect of tax planning is understanding the bracket you fall into — and how income brackets work more broadly. This is particularly true if you’re a millennial with a fluctuating income. Tax-advantaged accounts like 401(k)s and IRAs provide vehicles to defer your taxes for the future.
- Take advantage of student loan interest deductions: Many millennials have a significant student loan burden, as highlighted earlier. If this is you, you could benefit from student loan interest deductions. Interest paid on student loans is deductible from your taxes up to a certain amount. If you participate in an income-driven repayment plan such as the SAVE plan, you could benefit from a lower monthly payment related to your income as well.
- Take advantage of tax credits: You may be eligible for certain tax credits — such as the earned income tax credit (EITC), the child tax credit and other education-related credits. You could potentially reduce your tax liability by meeting the specific criteria.
- Using tax-advantaged investment accounts: Millennials are more inclined to invest nowadays than in years previous. Consider utilizing a health savings account (HSA) for qualified medical expenses, or a Roth IRA to maximize your returns and minimize future capital gains tax upon retirement.
- Fully understand self-employment taxes: Millennials are notorious for embracing gig work and relying on side jobs as a major source of income. If this describes you, it’s crucial to understand self-employment taxes and deductions. For example, you’ll need to put money aside to pay your tax bill each year — and you might have to pay quarterly income taxes as well.
- Learn about homeownership tax benefits: Are you a millennial homeowner? Be sure to take advantage of various tax benefits, such as deductions for mortgage interest and property taxes. If you’re a first-time homebuyer, you could also qualify for additional tax credits.
- Take advantage of tax deductions via charitable contributions: Similarly to embracing the gig economy, millennials are increasingly showing generosity through charitable donations. While you’re making a positive impact on a cause you care about, your donation may also serve as a tax deduction. Be sure to keep records and receipts of all charitable donations.
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