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Have you ever cried overtaxes?
Dont worry if so youre not alone.
But is that stress really unavoidable?
If youre a millennial, adjusting your tax strategy now could pay significant dividends in the long run.
These six tactics are a great place to start.
Adopting them could reduce your stresswhen doing taxes and save you money for years to come.
Unlike deductions, credits reduce your tax liability directly.
This means you might use them to reduce your tax bill even if you claim the standard deduction.
One key goalin creating your tax strategy is ensuring you pay only what you owe.
Understanding and using the tax credits available to you is a significant part of that.
The standard deduction reduces your income by a fixed amount.
The better option will depend on your financial situation.
Some taxpayers, such as married individuals filing separately, cant claim the standard deduction.
If so, take the itemized deduction.
If not, go with a standard deduction instead.
Dont Forget To Deduct Student Loan Interest
Millennials have anaverage student loan balanceof $32,800.
Many members of the generation carry significantly more student debt.
The federal government lets students with debt write off $2,500 in interest payments annually.
That may not feel like a lot, but its something.
Plus, it may impact some of your other tax strategies.
This is a good example of how one tax strategy change can lead to another.
Thats why its important to reevaluate your tax situation every so often.
The strategy you decide on could impact your ideal way to save.
For example, Roth and traditional IRAs get taxed differently.
With a Roth IRA, youll pay taxes when making contributions instead of withdrawals.
This seemingly minor distinction can have a huge impact on your finances in retirement.
You may be tempted to invest those funds in the stock market.
The S&P 500 returns an average of 10.52% annually.
However, this would create new tax liabilities for you when you sell the shares you buy.
A high-interest savings account may pay you less as you save for your home.
But it would simplify your income tax situation by saving you from capital gains taxes.
Plus, youd avoid market risk.
Look Into Health Savings Accounts
As you get older, youll needmore and more medical care.
Paying for that is often challenging, but health savings accounts (HSAs) offer a tax-friendly solution.
An HSA is a tax-advantaged account you’re free to use to save for future medical expenses.
Also, any money you contribute to an HSA will be deducted from your adjusted gross income that year.
This reduces your tax bill by decreasing the amount youre being taxed on by the IRS.
Do Millennials Need Tax Preparation Assistance?
There are many resources available online to help younger taxpayers learn about their opportunities and obligations.
However, these general tips dont take your specific financial situation into account.
If you have special circumstances, it could make sense to work with an expert.
Tax preparers can help you understand credits, deductions and what youll owe.
They can work with you to evaluate different strategies and figure out which is best.
But not everyone needs these services.
It really depends on your financial situation and goals.
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