Doing your taxes as a millennial can be interesting to say the least. Instead of waiting around for the perfect job, you guys are the ones getting out there and starting your own businesses. Sometimes juggling multiple jobs at once. Plus, you’re paying off student loans, investing for your future and buying houses. All of which can make for a complicated situation come tax time. We know what you’re going through so we have some tips to make the task less daunting.
File as early as possible
At tax time, you usually come across two kinds of filers; the procrastinators and the early filers. The procrastinators dread doing their taxes so much that they put it off until the absolute last-minute. The early filers are the exact opposite. They want their refund so bad, they may try to use their end of the year pay stub to get their return done. You need to fall somewhere in the middle. Once you have your W-2 and other tax documents handy, get your return over with. For one, not everyone works well under pressure. By starting early, you’ll be able to move at your own pace and avoid unnecessary stress. If you owe the IRS, it also gives you more time to pay off your balance little by little.
Another good reason to file ASAP is because scammers are always up to no good during tax time. By filing early, you can beat them to the punch. If your return is accepted before they make their move, their fraudulent return will be rejected when they try to use your information.
Gather the essentials
Being organized is the key to surviving the tax season without losing your mind. Here’s a basic list of what you’ll need to file your return.
- Your social security number
- W-2 from your employer
- 1098 and 1099s for other income
- A copy of last year’s tax return
- Checking account information for your refund or balance due
Of course, the list doesn’t end there. Some financial situations may require you to have additional documents on hand. To ensure nothing gets overlooked, we suggest checking out our Tax Prep Checklist.
Choose the right tax program
There’s no reason to torture yourself by trying to do your taxes by hand. For most people, e-filing is the way to go. There are plenty of tax programs on the market that can make your life easier. Go for one that’s user-friendly and offers the best price for what you need. We recommend giving ezTaxReturn a try. Their step-by-step guidance is easy to follow so you can prepare your return with complete confidence.
Report all of your income
Approximately 44 million Americans work a side hustle in addition to their 9 to 5. Guess which age group leads the pack? Millennials. Almost 30 percent of millennials report having another source of income. Whether you earn money from your main or second job, it needs to be reported on your tax return. If you don’t and the IRS finds out, you may incur penalties.
Claim all the tax breaks you can
When you do your taxes, you want to owe as little as possible so you get a bigger refund. The best way to lower your tax bill is to take advantage of available credits and deductions. A huge money-saving credit taxpayers commonly overlook is the Earned Income Credit. This tax break is geared towards workers earning less than $53,930. If you meet the income and other requirements, you can lower your tax bill by up to $6,318. Other tax breaks you can’t afford to miss are:
- Saver’s Credit
- Student Loan Interest Deduction
- Lifetime Learning Credit
- American Opportunity Tax Credit
Contribute to an IRA
When you’re barely making ends meet, saving for retirement tends to take a back seat. But what if we told you that saving for your future can lower your tax bill? Well, it’s true. Contributing to an IRA, 401(k) or another employer-sponsored plan, can help you qualify for a Saver’s Credit. This credit is potentially worth up to $1,000 ($2,000 for married couples) depending on your adjusted gross income. There’s still time to contribute to an IRA for tax year 2017. You have until April 17, 2018 to contribute a maximum of $5,500 so move quickly.
Know the consequences of missing the tax deadline
Think you’re in hot water when you forget someone’s birthday or your anniversary? Try missing the tax deadline when you owe Uncle Sam. Not only will you get slapped with two penalties, your debt will also accrue interest. When comparing the penalties for filing and paying late, the latter is the lesser of two evils. The late payment penalty starts at 0.5 percent of your unpaid taxes but continues to grow monthly until it hits the 25 percent maximum. So the faster you pay your balance, the better off you’ll be.
Missing the filing deadline is a lot more expensive. The penalty starts at 5 percent of your unpaid taxes for each month it’s late and can climb up to 25 percent. Go another 60 days without filing and you’ll dig yourself into a much deeper hole. The minimum penalty jumps to $205 or 100 percent of your unpaid taxes, whichever is less. Even if you can’t afford to pay your balance, at least make it your business to file on-time. The last day to do so without penalty is April 17th. If all else fails, you can always request an extension using Form 4868. This will give you more time to file but not more time to pay.