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Millennials are at a time in their lives that is commonly full of changes. These changes might include graduating from college, getting married, starting a family, or maybe even buying a house. Some of these changes lead to financial decisions that can really impact your tax return. And we all know completing a tax return, while not necessarily difficult, can be intimidating. They can be difficult to navigate, which can lead to tax mistakes.
If you’re a millennial at any of these life stages, try to avoid these four common tax mistakes at all costs.
Visit a qualified tax professional to learn more or watch this video about the American Tax Burden.
Once you reach age 26, you are required to have health insurance. Otherwise, you’ll have to pay a penalty when you file your tax return. Other than having health insurance, the only way around the penalty is if the lowest cost health insurance available to you is more than 8.05% of your income.
Millennials should be aware of these costs as they’re right at the age when they’ll no longer be able to take advantage of their parents’ insurance policy. If you haven’t secured full-time work with benefits yet, make sure you have a plan for health insurance so you don’t incur a tax penalty.
Another common tax mistake millennials make is choosing the wrong filing status on their tax returns. It can be difficult to decide if you should continue to file as a dependent or if you are eligible to file independently.
In general, parents can claim children under age 19 or up to age 24 if they are still students, according to IRS guidelines. If your parents claimed you as a dependent, you cannot claim your personal exemption on your own return. So, double check with your parents to make sure you both have the correct filing status on your tax returns.
If you do happen to make a mistake and claim yourself when you shouldn’t have, the IRS will likely send you a letter, in which case you’d need to file an amended tax return.
Most millennials have some student loans to repay if they went to college. And one of the ways the government supports higher education is by offering a tax break based on how much interest you paid over the course of the year.
You can deduct up to $2,500 of student loan interest on a qualified student loan if you are under the income ceiling of $80,000 for the year. Many people don’t realize they can deduct their student loan interest even if their parents have been helping them with interest payments along the way, so definitely keep tabs on this one and make sure you get the deduction you’re entitled to.
If you plan on doing your own taxes this year, file your taxes the smarter way and save up to $15 on TurboTax®.
Unfortunately, when some people receive their tax refund, they don’t spend it wisely. According to USA today, many people do use their tax refund towards debt repayment or investing, and a small percentage use it for extras like vacations.
Although it may not sound exciting, try to follow these important tax tips and especially consider putting your tax refund to good use. Following this advice can help you reach your financial goals, like paying off debt, investing for the future, or building an emergency fund. Then, once you reach those goals, there will be plenty of time for fun and vacations in the future.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.