7 Essential Tax Deductions and Credits for Millennials
Filing taxes isn’t much fun for any age group, but millennials find the process downright frightening.
A recent Nerdwallet survey found that 80% of millennials (ages 18-34) report fears around tax preparation, including making a mistake (22%), not getting a full refund (17%), and paying too much in taxes (13%), among other concerns. By contrast, 60% of adults ages 55 and older expressed similar anxieties.
“It makes sense,” says NerdWallet columnist Liz Weston, “Millennials tend to have less experience with a deeply confusing tax code and less cash to seek professional help.”
So what can millennials do to avoid leaving hard-earned money on the table at tax time? If you want to maximize your return (or minimize what you owe), it pays to learn which tax deductions and credits might apply to you—here are seven big ones to consider.
1. Job hunting costs
Were you spiffing up your résumé, filling out job applications, or traveling to interviews in 2015? As long as you were searching for a position in the same line of work as your previous occupation, you may be eligible to write off job hunting costs including travel expenses, agency fees, and costs associated with preparing and mailing your résumé. (Keep in mind, though, that if you were searching for your first job or if you had a substantial period of unemployment between jobs, you’re not eligible for this deduction.)
2. Moving expenses
If you switched jobs in 2015 and moved to be closer to your new workplace, you may be eligible for the moving expense deduction (as long as your new job is at least 50 miles from your old one). With this deduction, you can write off expenses like moving van rental, storage fees, shipping costs, and some travel expenses.
3. Student loan interest
Even if you take the standard deduction, you can also deduct up to $2,500 of student loan interest against your taxable income as long as you paid interest on a qualified student loan in 2015. There are a few more restrictions to this deduction—your status can’t be married filing separately, your modified adjusted gross income must be below a certain amount ($65,000 for single filers or $130,000 for joint filers in 2015—if you made more than that, the deduction will be reduced), and you can’t be claimed as a dependent on someone else’s return.
4. Retirement savings contribution credit
If you haven’t started an IRA, this tax credit will provide some incentive to open that account. Individuals earning less than $30,000 per year (or joint filers earning up to $60,000) are eligible for tax credits of up to 50 percent on the first $2,000 or $4,000 they tuck away in a retirement account. “Designed to offer an incentive to low-income taxpayers to start saving for retirement, this credit is icing on the cake for smart planners,” writes Dan Caplinger of DailyFinance.com.
5. Earned income credit
If your main source of income is from the gig economy and you’re not bringing home a big monthly paycheck, you may be eligible for the Earned Income Credit (EIC)—especially if you have kids. The EIC is designed to provide tax relief to individuals or families who may have little or no tax withheld from their paychecks. To see if you’re eligible, use an online calculator.
6. Lifetime learning credit
Are you working on a degree and paying at least some of the expenses out-of-pocket? If so, you might be eligible for the lifetime learning credit, which provides a tax deduction of up to $2,000 for the 2015 year. You can grab this credit if you’ve paid qualified education expenses at a college or university that’s eligible for federal student aid programs.
7. Standard mileage deduction
Maybe you already know you can take the standard mileage deduction when you drive your car on business-related trips (other than the daily commute)—but did you know that in most cases, you can also deduct mileage spent on driving to and from your doctor’s office, during a qualifying move, or while volunteering for charitable organizations? For 2015, the standard mileage deduction for business is 57.5 cents per mile, while it’s 19 cents per mile for moving and medical transportation and 14 cents for charitable errands.
Curious about other deductions you might be eligible for? Check out 99deductions, a website that allows you to search for deductions based on your job. “For each type of deduction, the site breaks down all the important details for you in plain English,” writes Kristin Wong at Two Cents. “Overall, it’s a simple and useful tool to use, especially if you’ve earned any freelance income for the year.”
While there are many great deductions out there, don’t be tricked into buying things you don’t need just because they’re tax deductible items. “Putting the label of ‘tax deduction’ on something doesn’t magically turn that something into a good idea or must-buy,” writes Greg Braun at Get Rich Slowly. “In fact, you have to take off your tax-deduction goggles and ask yourself if this is really getting you ahead in your financial life. Or is it saving you taxes while letting even more money slip through your hands?”
Want to start saving for life’s important goals—and next year’s tax bill? Download the Dobot app today to get started.