Tax season can be confusing for many recent graduates and young professionals. To avoid any unpleasant surprises this year, or maybe even get some extra money, here are some tax deduction tips explicitly focused on young Americans!
Tax Saving tips!
Like any other generation of taxpayers, young professionals can deduct many of their expenses from their taxes depending on the nature of their job. Although not everyone qualifies for every tax break, you must first know the opportunities to take advantage of them. There are many ways to reduce your tax bill legally, whether you’re an employee or self-employed.
This article explains how to take advantage of tax relief. These simple tips and tricks are a great way to get started:
1. Deduct job-hunting expenses
Although the job-hunting expenses to be claimed have changed since 2017, you can still file an amended return for a tax year in which you looked for employment before 2018. The job-hunting deductions you can claim include the cost of resume preparation, travel expenses for interviews, mailing, and placement agency fees. [1
To qualify for these deductions, you must itemize your deductions. You won’t be able to claim this deduction if you’re looking for your first job.
2. Examine Your Health Expenses
Here’s the good news: if your medical expenses exceed 7.5% of your adjusted gross income, you can receive tax debt relief. These expenses include fees to doctors, dentists, specialists, mental health professionals, and hospital care.
3. Inherit IRA 401(k) account
A 401(k) is a popular way to reduce tax debt. The internal revenue service doesn’t apply tax on direct transfers from your paycheck into a 401(k).
As a 401(k) plan beneficiary, you can roll over the account to the Internal Revenue Service. The beneficiary benefits from the tax deduction leaving the tax bill on them. To qualify for this break, you must be named the 401(k) beneficiary.
4. Contribute to Retirement savings
According to the Internal Revenue Service, you can make tax-free contributions to your retirement plan at $5,000 a year, but the limit goes up to $11,000 a year if you’re self-employed.
As an important note, establish these plans before setting deadlines. Your debt relief amount will depend on the type of plan that you choose. There are various types of retirement plans, including;
- Individual Retirement Arrangements (IRAs)
- Roth IRAs
- 401(k) Plans
- SIMPLE IRA Plans
- SEP Plans (Simplified Employee Pension)
- Payroll Deduction IRAs
5. Make your IRA contributions sooner rather than later
You can benefit from Simplified Employee Pension (SEP) IRA contributions as a business owner. These contributions are deductible with higher contribution limits.
Note that income eligibility limits apply to Roth IRAs and the deductibility of traditional IRAs, but you can talk to an advisor for help.
6. Deduct expenses even if you don’t itemize
As a first-time taxpayer, you might think the standard deduction is enough for you. The average deduction amounts for 2015 taxes are $6,300 for singles and $12,600 for married couples.
However, itemized deductions are those specific expenses you make throughout the year and are tax-deductible. You can itemize if the total amount of these expenses is greater than the standard deduction amount. Moreover, you can get itemized deductions on various expenses, including charitable contributions, medical and dental expenses, state and local income taxes, and home mortgage interest.
Other tax deductions are still known as above-the-line deductions if you don’t itemize. You can take these tax breaks without itemizing. They reduce your taxable income.
Filing taxes can be intimidating to the uninitiated, so you may want to look at getting some help. You can get free tax assistance at the Internal Revenue Service Volunteer Income Tax Assistance if your gross income is less than or equals $54,000.
Besides that, a tax agent can guide you on what you can and can’t claim. You can reach out to numerous online tax agents that allow you to do your tax from the comfort of your home. The more you know, the better you set yourself up to take full advantage of the tax system.