8 Crucial Tax Tips for Millennials

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As a millennial, you might have a surprisingly complex tax situation. Owing student loans, working multiple side hustles, and investing at a young age are all complicated scenarios come tax season.

Because of this, filing your own taxes often comes with added stress and unknowns. To help streamline this chore, here are eight tax tips for filing taxes when you have multiple streams of income and various financial responsibilities.

1. Don’t Miss the Tax Deadline

The most important part of filing your taxes is doing it by the deadline. The IRS doesn’t mind if you need more time or you don’t have the funds to pay the entire tax bill right now, but you must take the proper steps to alert them.

Decide which route to take: Either file your taxes completely, request an extension, or apply for a payment plan. Whatever you do, don’t ignore the situation and hope it will just go away.

If you miss the tax deadline without requesting an extension, you could be subject to penalties, interest, and late fees.

2. Choose the Right Tax Software

If your tax situation is fairly simple, you may feel comfortable filing your own taxes using a DIY tax software program. There are many reputable programs available, so shop around to find a good deal.

You may even qualify for free filing services. If you earn less than $64,000 a year, the IRS offers free software to help you file your taxes at no charge.

3. Write Off Side Hustle Expenses

Sure, you know how to file taxes for the income from your day job. But if you also earn money through a side hustle, you may have extra considerations.

For example, you may be able to write off certain expenses you incurred through your side hustle. If you purchased equipment or office supplies, these costs can be deducted on your tax return. Doing so reduces your taxable income, meaning you would owe less to the government.

4. Maximize Education Tax Savings

If you have student loans, you could save money come tax time. Nearly all education costs, whether it’s interest paid on your student loans or additional classes you’ve taken for continuing education requirements, are tax deductible. See a full list of education credits and deductions here.

List out all of your higher education expenses to see which ones you qualify for. If you’re unsure, speak to a tax professional who can offer additional tax tips, or follow the prompts in your tax software.

5. Inquire About the Saver’s Credit

The longer you wait to start saving for retirement, the less time compound interest will have to work on your behalf. To encourage people to stash away money in a retirement account, the IRS offers a tax credit called the Saver’s Credit.

The Saver’s Credit is often overlooked, even by tax professionals, but it can greatly reduce your tax bill at the end of the year.

The amount of the credit is 50%, 20%, or 10% of your retirement contributions up to $2,000 (or $4,000 if married filing jointly). The amount you qualify for depends on your adjusted gross income.

6. Deduct Job-Hunting Costs

Did you know that you can deduct any costs related to hunting for a new job? It’s true. If the new job is in your current career field, you can claim this tax deduction. Job search costs that you may be able to claim on your taxes include:

  • Resume copies
  • Dry cleaning
  • Employment agency fees
  • Certifications or classes
  • Business travel expenses

7. Block Off Time to File

Scheduling time to actually file your taxes is one of the most important tax tips. Block out time in your calendar to work on your taxes so you don’t have to rush through the process. Pretend it’s a regular appointment, and vow to keep it no matter what else comes up.

The tax filing process may take a few hours, so it’s not something you want to save until the last minute. Schedule time in your calendar sooner rather than later so you don’t feel as stressed.

8. Double Check Your Calculations

Even the smallest calculation errors can prove to be big mistakes when it comes to your taxes. Take time to double check your work: Have you listed all the deductions and credits you qualify for? Did you include all your income sources from various jobs? What about your higher education expenses and retirement contributions?

Nearly all DIY tax programs come with built-in features to ensure that your tax information is correct. The tax software will make sure your math is correct, but nothing is better than your own two eyes — especially when inputting your Social Security number, address, income figures, and expense costs.

Doing your taxes is never a fun task, but taking the time to do them correctly can save you big bucks. Educate yourself on the deductions and credits you may be eligible for and lean on free resources to help you file.

(Editor’s note: Tax season is always full of scams. You can use these tips for protecting yourself from taxpayer identity theft.)

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4 Things You Need to Know About Filing Your Taxes Early

No matter your motivation — whether it's to get them out of the way or get your refund sooner — here's what you need to know about filing your taxes early.

While getting a tax refund is fun, preparing and filing your taxes rarely is as fun.

As you think about how much you pay in taxes, consider this – in 1944 to 1945, the highest marginal tax rate was 94% and applied to any income more than $200,000 — or about $2.7 million today, given inflation. While I wouldn’t mind making $2.7 million a year, giving almost all of it back would make me want to delay filing as long as possible. (If you do owe, make sure you pay on time or work out a payment plan so you don’t hurt your credit. Want to see if your taxes have affected your credit at some point? Take a look at your free credit report snapshot on Credit.com.)

Fortunately, our tax rates aren’t that high anymore and almost 73% of tax filers get a tax refund. So, this year, why not go for the quick financial win and get your taxes done early? And if you end up finding out you owe, knowing sooner can help you budget to have money to make that payment.

1. Wait Until the Season Starts

If I’ve done my job convincing you to get your taxes done early, you may be eager to file so you can get your return as quickly as possible, thinking the first of the year is the day to start (so you may feel like you’re already behind).

While I appreciate the enthusiasm, wait a moment — the IRS doesn’t start processing returns until the start of the “tax filing season.”

The tax filing season for 2017 doesn’t start until January 23. You can prepare and file before the 23rd, but tax preparation software (and an accountant) will hold returns until the start of the season.

You can start getting everything you need together now, but don’t rush to file until after the tax filing season starts.

2. Keep Track of Outstanding Documents

Keep a checklist of all the outstanding documents you need to prepare your taxes. As documents come in, put them in a special folder and mark them off your list.

The typical taxpayer will have a W-2 from their employer and 1099 Forms from banks, brokerages and other income sources. Issuers need to get those forms in the mail by January 31, so you should have them all by early February. The only exception is a Form 1099-B (Proceeds From Broker and Barter Exchange Transactions), which has a mailing deadline of February 15. Many institutions now issue these forms electronically, so if you haven’t received any of yours in the mail, you may opt to check your account online.

If you have a mortgage, look for a Form 1098 from your mortgage company because that will indicate how much mortgage interest you paid that year. If you have student loans, be on the lookout for a 1098-E from your loan servicer(s). Companies are required by law to have these in the mail by February 15.

If it’s mid-February and you’re missing a form, contact the institutions responsible for mailing it to you.

Once it’s officially tax filing season and you have all your documents, you can start filing.

3. Consider Using Tax Preparation Software

Tax software is probably the quickest way to complete your taxes because the software is designed to be as easy to use as possible. If you have a very simple tax situation, many tax software companies have programs that allow you to file for free. (If you’ve never used this type of software before, the first step is to compare your options and decide which one is best for you.)

Most tax preparation software uses simple questions to walk you through complicated tax forms step by step. The software can help you maximize deductions and find any tax credits you qualify for. Your tax situation may seem tricky to you, especially if you’ve tried to decipher everything on Form 1040, but the companies behind tax preparation software have seen millions of returns, which makes your situation easier for them.

Many of the tax prep software systems also integrate with payroll providers and banks, so if you give them access, they can import a lot of your information automatically. This cuts down on the data entry you’ll need to do and can help reduce errors. In some cases, they can use this integration to get information off a form you haven’t received a hard copy of yet.

4. E-File

This tip won’t get your taxes finished earlier, but can help you get a refund faster.

When you e-file, your return gets to the IRS faster. With that, you bump up your odds of having your return getting processed faster, which means your refund is sent to you sooner. If you elect to get a direct deposit, the refund gets to you even faster. Typically, the slowest way is to file by paper, mailing in your return and requesting a check in the mail.

So, if speed is of the essence, e-filing your return is the quickest by far.

After you’ve filed, you can check the IRS Where’s My Refund tool to see where your return is in the process. You must wait 24 hours after you e-filed or four weeks after mailing a paper return (see what I mean about mailing being incredibly slow?) to check the status.

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Help! I’m Not Ready to File My Taxes. What Should I Do?

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You didn’t get your tax documents in order yet. You’re still waiting for a lost W-2. You just flat-out haven’t felt like tackling your taxes. Whatever the reason you don’t have your tax return completed yet, there’s no need to stress about it. Filing for a tax extension is a quick and painless experience that will give you an extra six months to file.

There are several important things you’ll want to keep in mind, though, if you’re filing a tax extension.

1. A filing extension is not a payment extension.

If you think you’re going to owe the IRS additional taxes this year, you’ll need to estimate on your extension (Tax Form 4868, which you can free file) what you’re going to owe and go ahead and pay that amount by this year’s deadline of April 18.

If you end up overpaying, you’ll get a refund. If you under-pay, you could owe penalty and interest on the amount you didn’t pay. Here’s a breakdown of the penalties and fees you may owe the IRS for filing or paying late.

2. Can’t afford to pay? Review your options.

If you’ve been putting off filing because you know you owe and just can’t afford to pay your taxes due, you should immediately contact the IRS to ask for an installment agreement, so you can pay what you owe in smaller amounts over time.

When you enter into the payment plan, the fees and interest will be assessed to the end of your agreement, so if you plan to pay off the debt before the end of your agreement, contact the IRS to adjust your installment amount.

Consider all your options: Using a personal loan or credit card to pay your taxes on time may be cheaper than what you’d owe the IRS by the time you factor in all the penalties, though generally a payment plan with the IRS is your best bet.

Also, failing to file your extension by April 18 results in a late-filing penalty, which is why it’s important to file on time.

3. Don’t bury your head in the sand.

The worst thing you can do when dealing with unaffordable taxes is ignore them. If you owe tax debt, the IRS can take serious enforced collection action, such as taking money from your bank accounts, wages, or other income. In general, they have many more options available to collect your tax debt than do other companies you may owe money to.

The IRS may send a debt collector to retrieve the funds you owe, or if you owe $10,000 or more and can’t pay it right away, the IRS may file a Notice of Federal Tax Lien. Tax liens are reported to the major credit bureaus, and are considered very negative information so your credit scores can drop significantly as a result. If you’re concerned about how tax debts might be affecting your credit, you can get a free credit report summary on Credit.com.

Under the federal Fair Credit Reporting Act, tax liens can be reported longer than any other type of negative information — seven years from the date they are paid. However, under the IRS Fresh Start initiative, you may be able to get a tax lien withdrawn and removed from your credit reports once you pay it, or enter into an installment agreement, which we’ll discuss in a moment. That’s all the more reason to find a way to work with the IRS rather than avoid paying.

More on Income Tax:

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4 People Who Have a Tough Tax Season

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It’s tax season, and if you haven’t already filed your taxes, chances are you’re a little stressed about it. But if you’re an average taxpayer, you’ve actually got it pretty sweet. There are some income situations where paying taxes can require more paperwork, more filing deadlines and, yes, even more stress.

We reached out to the folks at TurboTax to find out which taxpayers have the toughest time when it comes to filing their taxes. They offered some handy tips to keep folks in these income situations on the right track with the IRS. So, if you ever think you’ll be in one of these situations, keep this list handy.

1. Freelancers/Self-Employed/Small-Business Owners 

Freelancers are a growing population of taxpayers especially with the growth of the “on-demand economy.” A recent Intuit survey found that 3.2 million people currently participate in the on-demand economy, and that number is expected to grow to 7.6 million by 2020.

How taxes are different for them:

Freelancers and the self-employed often pay income taxes and self-employment taxes as they get paid for work. Known as estimated taxes or “quarterlies,” freelancers typically make tax payments four times a year. This doesn’t mean freelancers must file a tax return four times a year, it just means they’re making payments that will be included as taxes paid when they do file their tax forms.

How to make filing easier:

Hiring a tax professional can save you time and headaches, but they can also be expensive. If you can’t or don’t want to pay an accountant, filing software is another option. Also, you’ll want to be sure to track your receipts and expenses.

“Keep your receipts and track your income and tax deductible expenses year-round instead of waiting until the last minute,” advised Lisa Greene-Lewis, a CPA and tax expert at TurboTax. “Figure out your estimated taxes. In general, if you think you will owe more than $1,000, you need to pay quarterly estimated taxes.”

Greene-Lewis also recommended taking full advantage of business expense deductions available to the self-employed. “For instance, if you … drive for Uber or Lyft, you may be able to deduct the cost of the car you purchased up to $25,000 if you use the car over 50% for your business.”

2. Commission Wage Earners

Commissions can be treated in two ways for tax purposes: as straight salary, in which case the employer would withhold taxes from the individual’s compensation based on the elections the employee makes on Form W-4P; or the individual can be treated as a self-employed independent contractor, responsible for remitting their own taxes to the IRS and state tax department.

How taxes are different for them:

It’s that second scenario that can get tricky, with special rules applying to tax withholding, including requirements to avoid excise taxes that apply to underpayment of estimated taxes. The help of a tax professional is probably in your best interest in this case.

How to make filing easier:

First, that tax professional is going to make life easier. Second, there are ways to reduce tax liability.

“Taxpayers expecting commissions or more [commissions] than usual may be bumped up into a higher tax bracket, but there are few things they can do,” Greene-Lewis said. “If they want to reduce their tax liability they can reduce their taxable income by maxing their retirement contributions, paying estimated taxes, and seeing if their employer can defer an end-of-year commission to the following year.”

3. Overseas Wage Earners

If you are a U.S. citizen or a resident alien of the U.S. and you live abroad, the IRS taxes you on your worldwide income. However, you may qualify to exclude some of your foreign earnings, according to the IRS. In addition, you can exclude or deduct certain foreign housing amounts.

How taxes are different for them:

You must keep track of all income, which can be tricky if you work in multiple regions and/or for multiple employers. All of this income must be reported to the IRS.

How to make filing easier:

“If you receive foreign income you may be eligible for a foreign tax credit reported on Form 1116 if you paid and accrued foreign taxes and are subject to U.S. tax so you are not taxed on the same income,” Greene-Lewis said. “You may be able to take a deduction, but most people take the foreign tax credit if eligible since credits reduce your tax liability dollar for dollar.”

4. Green Card Holders

Green Card holders become U.S. tax residents automatically, beginning the year they receive their Green Card. They must declare their entire income to the U.S. government (foreign wages included), unless steps were taken to be treated as a resident of a foreign country under an income tax treaty.

How taxes are different for them:

Some Green Card holders seem to think the number of days spent in the U.S. each year has some effect on whether or not they are a tax resident. This is true only for people who have nonimmigrant visas, not Green Card holders. The IRS provides answers to a lot of common Green Card tax questions on their website.

How to make filing easier:

Make sure you have your Individual Taxpayer Identification Number (ITIN). The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security number from the Social Security Administration.

Also be sure to keep track of all income, foreign and domestic, and report all of it to the IRS.

More on Income Tax:

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5 True Stories of Totally Weird Tax Deductions

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Tax season is almost upon us, which means someone, somewhere is asking the age-old question: Can I write off my cat food? (The answer: You can’t unless it’s a business expense). What you can do, however, is read this excellent roundup of weird tax deductions, guaranteed to get you jazzed about filling out that 1099. And if you aren’t ready for tax season, what are you waiting for?

1. Bar Mitzvah Networking

“I’ve seen my fair share of weddings, bar and bat mitzvahs and other large parties that were ‘100% business deductions,'” Howard Rosen, a certified public accountant and tax attorney based in St. Louis, told Credit.com via email. “When I asked for the invite list and the business relationship of each person on it, most of the deduction disappeared.” No wonder: If you’re inviting customers, bankers, attorneys and so on, you may be able to deduct the direct costs associated with those people. If it’s your Aunt Martha, 12 cousins on your mom’s side and your sorority sisters, you may be out of luck.

2. Bruno the Guard Dog

“I had a client who wanted to deduct the cost of her ‘guard dog’ because she had valuable artwork in her home,” Rosen remembers. “The dog was a Pomeranian, and I knew this because I had been to her home several times. When I mentioned I had seen Bruno and knew he wasn’t really a threat to a burglar, she tried to convince me the dog’s bite was awful and that he was indeed there to protect her collection. I suggested she install an alarm system instead.”

3. The Paleo Deduction

“Last tax season, a client wanted to deduct the cost of their family eating non-processed foods as a medical expense,” wrote John Kane, a CPA with the Cook Martin firm in Salt Lake City, in an email to Credit.com. “Their argument was that their diet — gluten-free, vegan, paleo — was expensive. There was no diagnosed medical condition, the taxpayer simply felt that they were able to think more clearly as a result of their ‘clean eating.’ This, unfortunately, is not deductible.”

4. Deductions by Way of Fiji

“Another client insisted his trips abroad were to find buyers for his products,” says Rosen. “What were his products, you ask? He was a residential real estate developer and he had never done any business outside his immediate area. I asked him to document any sales calls, banking relationships, potential buyers or other developers he had talked or met with on these trips. That ended the discussion pretty quickly.”

5. The Company Man

“I had a client that operated a handyman business and he expensed and deducted everything that was put on his company credit card,” Jared R. Callister, a CPA with Fishman, Larsen & Callister in Fresno, Calif., told Credit.com via email. “He was adamant that all expenses were business-related. However, when I combed through the receipts and found he was trying to deduct things like toothbrushes, deodorant and even women’s lingerie, it became clear that many of his so-called business expenses were just personal non-deductible purchases.”

Bummed you can’t take any of these weird tax deductions? Here’s a guide to the most common deductions.

More on Income Tax:

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4 Last-Minute Tax Moves You Can Make on Dec. 31

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Why hello there, Procrastinator. I know you’re busy wondering how 2015 got away from you, but here’s some good news: You still have time to make some tax moves to lower your bill before 2016. Want to do it? Of course you do. Here are some tips for those who thrive under pressure.

1. Clean Your Closet

If you itemize deductions, you might want to take some time to round up unused clothes and household items, and donate them before Dec. 31. “Take a picture of what you’re donating, make a complete list of items and value, and get a receipt,” said Gail Rosen, a certified public accountant based in Martinsville, N.J. Not only will this help you save on taxes, end-of-year non-cash donations can double as much-needed house cleaning. Cash donations and charitable donations share the same deadline, per the IRS.

2. Review Investments

You can sell losing stocks to offset capital gains, which is known as tax-loss harvesting. Read the ins and outs of that strategy here, but remember, if you’re considering tax-loss harvesting, be sure to think beyond the tax implications. “Don’t sell just for tax reasons,” Rosen warned. “It should make economic sense.”

3. Make Payments Early

You could make your January mortgage payment in December and have it count toward deductible interest for 2015. “Just keep in mind that if you do this in 2015, you have to do the same thing next year or you will only deduct 11 months of mortgage interest in 2016,” Rosen advised.

If you plan to pay tuition for courses in spring 2016, consider paying in December so you can deduct those qualified education expenses for 2015. Paying state taxes early could also improve your taxes. “If people itemize and their state has state income tax, they might consider making their fourth quarter estimated payment in December instead of January,” said Bob Wheeler, chief executive of RWW CPA in Los Angeles. Keep in mind the longer you wait to make payments, the more likely you are to miss the Dec. 31 cutoff.

4. Max Out Retirement Contributions

There are a lot of good things about saving for retirement, even in the short term. “I always suggest that you max out your retirement — it’s a great way to reduce your taxable income,” said Lisa Greene-Lewis, a CPA and tax expert with TurboTax. “When you max out your retirement, you may be eligible for the Savers Credit.” The Retirement Savings Contributions Credit, aka Savers Credit, gives a tax break to low- and moderate-income taxpayers based on income and retirement contributions. If you participate in a 401(k) through your employer, elect to make an employee deferral contribution by Dec. 31, though you can make qualified contributions until the tax-filing deadline. Contribution limits vary by type of retirement account and age.

You don’t have to wait until the last minute to do these things, however. Several CPAs we spoke with recommended reviewing taxes in October or November so there’s plenty of time to make adjustments and avoid any penalties. Tax preparation is really a year-long activity, and while that may not sound fun, it can make tax time less stressful.

More on Income Tax:

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