Posted by Taxes Made EZ Inc

Essential Tax Planning Moves Every Millennial Must Make

Essential Tax Planning Moves Every Millennial Must Make

Tax is one of the surest things on earth, and it's never too early to work on it. Unfortunately, people in the twenty-something age bracket who struggle to get on their feet can find the entire process cumbersome. Sadly, not knowing what you are doing makes it pretty easy to overlook an essential tax deduction or credit that could have translated to hundreds of dollars in savings. 

People like this are better off working with a financial advisor as there are essential things Millenials need to know when it comes to filing their tax returns. These are the most important ones:


Take all Deductions 

While the Trump tax plan almost made itemizing deductions utterly useless for many taxpayers, there are some deductions one might still be able to take provided you qualify. 

Claiming a standard deduction, for instance, allows you to deduct some amount of money from the overall tax. Itemized deduction also lowers your income that can be taxed. Ideally, you are better off claiming the one that gives the most savings. 

In 2021, the standard deduction value was $25,100 for joint filers and half the value for a single filer, while it was $18,800 for the head of households. 


Student Loan Interest Can be Deducted 

Paying off your student loan might be a future plan; however, an incentive to make the payment is to claim the student loan interest. With this, you can write off as much as $2,500 for the 2020 tax year. The deduction for a student loan can be claimed on Form 1040, which is possible with both filing routes.


Maximize Your Credits 

The idea behind tax credit is to reduce your entire tax amount and not the taxable income. Millennials have several tax credits they can claim. Education like the American Opportunity Credit, worth $2,500 (for recent grads and current students), is a good choice. Lifetime Learning Credit ($2000) is suitable for people going back to school for graduate study.

You are, however, limited to a single credit for the same expense in one year.

 

Make the Most of Tax-Advantaged Account 

When you consider saving for retirement, millennials have many advantages. First, you are simply shortchanging yourself if you are not enrolled in your employer's 401(k) or using an IRA. Second, when you fund a retirement account with the pre-taxed dollar, it brings down your taxable income. The implication is that you will pay fewer taxes. 

A Health Savings Account is a good idea if your insurance plan offers it. For 2021, HSA is $3,600 for single and double for family. Whatever you put in the HSA is deductible, and itemizing is unnecessary for this tax break.


Who Should Consider HSA?

Millennials have many things to think about, considering they are just finding their foot in life. Therefore, it is essential for people in the 18 to 35 age bracket to take time and steps to understand their tax situation. This will help maximize your savings both in the long and short term.


Conclusion 

While there is no escaping taxes, having a sound and legal tax strategy will go a long way to reduce tax liability and position you for a reasonable tax bill. In addition, an idea of the deductions, credits you can claim, and the tax-advantaged accounts that make sense for you will help you save a lot in taxes.      

For assistance with your taxes and other financial issues, consider getting help from a financial advisor or tax expert. Their expertise will go a long way in guiding you and maximizing your savings when it comes to taxes.


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