Millennials, the generation that followed Generation X, are people who were born between 1980 and 2000. They were the first generation to have had access to the internet and many have reached adulthood during a time of economic crisis. Many struggled to find employment during times of high unemployment. However, as Millennials come of age and begin to find employment, many are learning that higher salaries mean higher taxes. These tips can help millennials, and anyone else, reduce their taxable income, keeping more money in their bank account, while building retirement or savings accounts.
Talk to Human Resources
The first step in reducing taxable income is to have a conversation with the Human Resources Department as they often have information on ways to reduce taxable income. There may be flexible spending accounts, commuter benefits or other programs available through the company that use pretax dollars, thereby reducing the income claimed on taxes.
Anyone paying taxes is eligible for certain tax credits. The Millennial generation has a higher number of people who are working from home. Therefore, they are eligible to deduct home office equipment, such as computers and copiers, as well as office supplies and other expenses related to the business. Even telecommuters who work partially at home and partially in an office may be eligible for the deductions People who are 25 years of age or older who have lower than average income may also qualify for the Earned-Income Credit. In addition, low-to-moderate income earners who voluntarily contribute to an IRA, 410(k) or other retirement program may also be eligible for a Saver’s Credit.
Pay Additional Interest on Student Loans
Millennials are often burdened by high student loan debt and many are forced to request forbearance or deferment of payments until they can build income. If a student loan is in deferment or forbearance, interest may still be paid, however. Paying the student loan interest while the loan is in non-repayment status not only lowers the amount owed when full payments are required, but also adds a tax deduction. In order to qualify for the deduction, singles must earn less than $65,000 per year while married couples must earn less than $130,000 per year.
The Affordable Care Act requires that everyone have health insurance by the end of 2014 or pay a penalty to the IRS. Many employers offer health insurance that is deducted pre-tax, further lowering the tax burden. If an employer does not offer health insurance, speak to an insurance agent near you about obtaining insurance before the end of the year. The IRS penalty starting in 2014 is $95 per person with a maximum fine of $285 per family. In 2015, the fine rises to either two percent of the yearly household income or $325 per person with a maximum penalty of $975 per family.
These tips can help lower taxable income and save money when income taxes are filed after January 1. Preparing now can help prevent a nasty surprise on April 15 when taxes are due.