"Millennials file 1 out of every 3 tax returns, earn 1 out of every 6 dollars in income, and pay 1 out of every 13 dollars in taxes" according to the Tax Foundation's recent piece Millennials Pay Very Little in Income Taxes. Those facts are surprising, especially when you consider that when the term millennials is used words like entitled, lazy, spoiled, and naïve come to mind. My work in the tax business provides me with insight that millennials are innovative, justice-minded, and financially savvy - which may surprise many folks, especially their boomer parents. From earning to spending and saving, they actually know what to do with a windfall. There is a lot we can learn from millennials when it comes to a tax refund as well. Studies show disciplined spending and saving at the top of their "How-to Use My Big Refund" list.
Millennials place great importance on having the right job, one that makes them happy and where they can contribute and be valued, according to studies done by Intelligence Group. Sometimes the right education or a move is required to land those jobs. Millennials may be paying less in taxes because of their age and "place" in life since there are a number of deductions and credits that typically apply. Whether you are a millennial, or just wishing you were young enough to be one, you may benefit from one or some of the following:
- Student loan interest deduction - If you financed your education, you can deduct up to2,500 in student loan interest paid if your income falls within certain income limits. In the tax world where qualifying for itemizing deductions is hard, this is a deduction you can take even if you don't itemize - making it less taxing to put on your tax return.
- Education credits - There are also education-related credits you may be eligible to take based on certain qualifications. If you are still working towards your undergraduate degree, you may be able to take the American Opportunity Tax Credit, which offers a credit up to2,500 off your tax liability. There is also the Lifetime Learning Credit, offering a credit of up to2,000 for continuing, or graduate level, education. Take a look at the Education Credits topic on the IRS website for more information on these credits.
- Moving expenses - Once you have that education you will want to find great work in your profession. Moving away from home to begin a career when you are between ages 20 and 30 is a relatively common occurrence. If you move for the job, you can deduct your moving expenses on your tax return. Ideally, you will be able to deduct the cost of moving your furniture and personal belongings, as well as your travel costs (except for food) to the new location, which can lower your taxable income by thousands of dollars.
- Saver's Credit - As far as paying less tax, you might be able to get a double benefit using The Saver's Credit - a credit of up to1,000 for putting money into an IRA or an employer's retirement plan like a 401(k).
- Self-employment deductions - Taking that dream job with less pay could be one of the reasons so many millennials do freelance work or start their own business for extra income. If you do forge out on your own, don't forget to claim your income and your expenses. Let's say you drive for Uber, then you can deduct your mileage, the portion of your cell phone you use for business, car washes, refreshments provided for passengers, AAA membership, traffic programs, tolls, and parking fees.
We can all learn from millennials, work-life balance, contributing to society, and getting the biggest tax refund you can are important. Pay close attention to your tax return, this year, and every year and dedicate time and the resources to get it done right. If you are doing it yourself, spend time learning the deductions and credits that apply to you and claim them all. If you want to get help, be sure to find the right help. Choose a brand you trust and make sure your tax pro takes annual training and is experienced with your situation and type of tax return. That attention and focus will benefit you by making sure you keep as much of your money as you are entitled to and get the biggest refund you are eligible for.