Top 7 Tax Filing Tips for Millennials, According to Financial Experts
Written by
Sean Bryant
Edited by
Amber Barkley
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A recent study by LendingTree showed that 55% of millennials currently have a side hustle. That means that filing their taxes this year will likely be more complicated than filing a simple W-2 tax return.
If you fall into the millennial demographic, keep reading for some tips to help tax season go a little smoother.
Don’t Miss the Deadline
Although it may seem obvious, filing by the deadline is one of the most important tax filing tips. Millennials may lead a very busy life filled with many other competing deadlines, but filing your taxes on time is important.
If you can’t make the deadline, request an extension with the IRS. It’s free and will provide you with an additional six months to file. If you miss the tax deadline without requesting an extension, you may be on the hook to pay penalties, interest or late fees.
Report and Write Off Side Hustles
Many millennials have side hustles. These can be a great way to earn extra income. According to the IRS, you must file a tax return if you make $400 or more in net income from a side hustle. This is true whether or not you received a 1099 from the company that paid you for your side hustle. If you have multiple side hustles, you will need to report each one.
However, you may be able to write off certain expenses related to the side hustle. If you spent money on things like equipment, office supplies, phone bills or travel, then these are deductible expenses. This can help reduce your taxable income, so you may owe less to the government.
Max Out Your Retirement Accounts
Saving for retirement is a crucial step to take as soon as you reach the workforce. The earlier you get started, the better off financially you’ll be, once you’re ready to retire.
“One of the most effective ways for millennials to reduce their taxable income is by maximizing contributions to retirement accounts, such as a 401(k) or an IRA,” said Grant Sabatier, founder of Millennial Money and BankBonus.com. “Not only does this provide immediate tax benefits by lowering your taxable income, but it also sets a solid foundation for financial security in the future.”
You Can Deduct the Interest From Student Loans
If you’re still paying off your student loan debt, you can deduct a portion on your tax return.
“Millennials have the opportunity to deduct the interest they paid throughout the year on qualified student loans,” said Matt Stratman, president of United Tax. “This deduction enables you to lower your taxable income by a maximum of $2,500 or the actual interest paid, whichever is lower.”
Stratman went on to say that this deduction is crucial now that the student loan repayment pause has ended. However, it’s also important to note that this deduction does have income limitations. Your modified adjusted gross income must be less than $70,000 if filing single or $145,000 when filing jointly with a spouse.
Deduct Job Search Expenses
If you were unfortunate enough to be unemployed during the previous tax year, you may be able to deduct any costs you incurred related to your job search. Job search expenses you may be able to claim on your taxes include employment agency fees, certifications or classes, travel expenses, resume copies and dry cleaning.
Take Advantage of Free Tax Software If You’re Eligible
IRS Free File is a program where eligible taxpayers can prepare and file their federal tax returns using free tax software from trusted IRS Free File partners. Taxpayers with an adjusted gross income of $79,000 or less in 2023 can take advantage of these IRS Free File partner offers. Some providers also offer free state tax return preparation.
Each IRS Free File provider sets eligibility rules based on income, age and state residency. Active-duty military are also eligible, if they meet the requirements.
Double-Check Calculations
Make sure to double-check your calculations to make sure you don’t have any errors on your tax return. Check that all government-issued forms match what you report on your tax return.
Having errors is a quick way to get selected for a tax audit. Most millennials will choose to file electronically, which can help avoid most errors, since the software is designed to catch mistakes. However, double-checking all numbers to ensure they were entered and calculated correctly is still a good idea.
The Bottom Line
Not many people enjoy tax season, but it’s something that everybody needs to take care of on a yearly basis. However, by following each of these tips, you’ll be able to minimize the chance of making a mistake — and maximize your potential refund.
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