We discuss how Millennials can save money on taxes. We offer tax saving tips such as forming an s-corporation, getting tax breaks on student debt, saving money in HSA and Roth IRA.
Taxes, like death, are inevitable. Millennials have to pay taxes just like everyone else. This cannot be avoided. We have some excellent tax saving tips for Millennials in this article.
The most important advice we have for you is to invest in a tax preparation software hosted on the cloud. You can choose from ATX Tax Software Hosting, Quicken Hosting, ProSeries Tax software Hosting, Drake Tax Hosting and Lacerte Tax Software Hosting.
The big advantage of using a tax preparation software hosted on the cloud is that you can pay for it on a pay as you go basis, scale up or scale down your plans as you see fit. So, for example, you can sign up for a Drake Tax Hosting plan during the tax season itself, when you actually need it, without having to buy the software.
Okay, having said that, let’s get started with tax saving tips for Millennials…
Tip #1: As a Millennial, your biggest financial issue is likely to be student loan debt. You can get a tax break on this by paying down your student debt. Write off every college tuition deduction when at grad school. The IRS allows a deduction on the tuition fees, which allows a benefit of up to $4,000. When you get a refund for this from the IRS, be sure to use it to pay off the student loan.
Tip #2: If you have to travel 40 to 60 miles to a new job, you should know that you can get substantial tax benefit from this. Your moving expenses are tax deductible. Even if you work from home, you should know that you can take a deduction on your home office expenditure.
Tip #3: You should start saving for retirement as early as possible. Do save money into the 401k for your company, or save in a Roth IRA account. You should be aware of the tax implications of the decision.
Tip #4: To follow up on the point made earlier, saving money in Roth IRA is advantageous for young people. It’s meant for those under an income of $110,000, and any investment made in the Roth IRA grows tax free over the lifespan of the investment. If you are a college graduate, it won’t take long for your income to cross $110,000, so take advantage of Roth IRA now, when you can. Get the maximum tax benefit out it.
Tip #5: Health savings accounts or HSA are deeply advantageous from the tax point of view. You can contribute as much as you want to these accounts. The money should only be used for medical expenses. But the unspent investment gets tax-free interest for as long as you like. With medical expenses likely to grow much faster than the average income in the USA, signing up for an HSA is an absolute must.
Tip #6: One of the best ways to reduce taxation is to change your status from “employee” to “entrepreneur”. If you are in a consulting business or working as a contractor, form an s-corporation and get all the tax breaks that are given to small businesses. This way you won’t be reporting an income, but taking a percentage of the corporation’s profits as dividend distributions.
