It’s important for millennials to follow strict tax planning and compliance because it may affect their future plans such as having a family or in achieving success in their career. Since most millennials work in the corporate world or are self-employed, many of them can take advantage of tax breaks and credit. As they start to make their own money, more taxes are also needed to be paid for which may sometimes be difficult to manage and can be overwhelming. Fortunately, experienced and professional tax preparers are always ready to offer tax filing services including helping out millennials who are in dire need of guidance and advise in tax planning.
To give you an idea on some of the things you need to consider when making decisions that can affect you as a working millennial and as a taxpayer, we listed the following factors for you to take note.
Educational Expenses Tax Advantages
Expenses made to acquire your education are usually used as a tax credit except in some cases. If you’re an employee, your educational expense can be claimed as an itemized deduction. You can also take a miscellaneous itemized deduction which is subject to 2% of the adjusted gross income limitation as educational expenses related to work. On the other hand, if you are a self-employed individual, education expenses can be used as a business expense and can be deducted as ordinary and necessary business expense from your gross self-employment income. In order to qualify for this, the expenses must fall under your education maintaining the skills needed in the business or according to the requirements of an employer. Both of these factors show how educational expense can lead to greater tax benefit if you are well aware of it.
Insurance Deductions
If you have health and dental insurance premiums as self-employed, you are eligible for a 100% deduction even without itemizing your deductions. You may also include long-term care insurance premiums up to a certain limit. Your net self-employment income is limited as well after retirement contributions and self-employment tax deductions.
New Home Office Deduction
This factor can be a little complicated which is why a new home office deduction is implemented by the IRS where you can deduct $5 per square foot for up to 300 square feet with a maximum simplified home office deduction amounting to $1, 500. Of course you still need to qualify for it but either way, it’s a great deduction for those who work at home. The calculations may be a little stressful and difficult but that’s why there is tax professional who can help take care of it for you.
Job Hunting Expenses Deduction
Looking for a job that suits you is challenging by itself how much more if you have to spend money just to find one. This commonly happens for those who hire agencies to find the job for them. Good thing you can now deduct your job hunting expenses as long as you’re qualified for it. It means if your total miscellaneous itemized deductions plus your job hunting expenses are 2% higher than your adjusted gross income, you’re definitely qualified.
Benefit Cafeteria Plans
If you want to avoid income and FICA tax, try taking advantage and contribute to flexible spending plans as it allows income pre-tax. Included in the flexible benefits are health care and transit pass benefits which actually helps you save a large amount of money paying your taxes.
Expenses On Automobile Usage
Did you know that some of the miles you used up whenever you drive your car can be deductible too? If you’re self-employed or an employee, you can use the standard mileage deduction when you use your car for business, when driving to the doctor, or when volunteering to work on charitable organizations. There is, however, a certain threshold you need to reach before getting a deduction on miles used as an employee or medical reasons. To take advantage of this, make sure to keep records with accurate date, distance, and purpose.
Student Loan Interest
Proper management of your student loan interest can play a huge role every tax seasons. There is a $2500 limited deduction on student loan interest without itemizing can also result to zero depending on the level of your income. Knowing this can maximize your interest savings and a tax benefit. Today, there are hundreds of options to choose from to refinance student loans in order to lessen it’s burden to most millennials.
