While filing taxes often leads to a hefty paycheck from the government, the excitement and rush to receive that check can cause a few mistakes. These mistakes may seem minor now but can be detrimental in the long run. Taxes are usually an untouched taboo, but we’re removing the elephant from the room and addressing three mistakes millennials make while filing taxes along with tips to prevent them.
Dunking and Dodging- You know what you did!
For all the self-employed people out there, you might want to pay close attention to this tip. Now that you understand withholding you should also understand the dangers of not withholding enough. The truth is that $100 you got from your friend for helping them move is taxable. You may have been working an odd job on the side getting paid well even though you weren’t on any official payroll. You made $2,000 in 2018, but you must be careful how you spend it. You still technically owe taxes on that cash you got. The most common thing I see are young entrepreneurs who hustled hard and had several clients paying them throughout the year. If you spent all that revenue before the end of the year you could be in trouble! Any business that pays you over $600 a year is required to send you a 1099-MISC at the end of the year. All that revenue they gave you is an expense for them. You will be liable for the taxes you owe on every dollar you made. The best advice I can give you is to take a portion of everything you get and put it aside so you aren’t shocked by what you might owe the Government during tax season.
Spending before you get it-SMH
We all want a nice refund, but too often I see young people going about it the wrong way. You don’t have to dip into your pockets to pay that one guy down the street that you heard got everyone’s refund doubled for the low! Most of us young Millennials have simple returns that you can file yourself in an hour and get the same benefit! TurboTax is a great tool and for people making under $66,000 you can file your return for free directly with the IRS. Based on the IRS, most Americans are eligible to file for free. Don’t sleep!
Defer Defer Defer!
When we choose to do the mature thing rather than the comfortable thing you put yourself in a position to benefit in the long run. Start saving and investing now. If you are willing to take a cut from your paycheck to put aside money tax-free, this tip is for you. Check out how much your company matches for your 401K retirement plan. You can increase your own contribution on a per check basis. People typically do this when they have more income then they need to support their daily lives. Spend less now and save more later at a much lower cost!