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Tax Advice for Millennials

An array of deductions and credits can help 20-somethings reduce their tax burden.

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Tax Advice for Millennials
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By Kimberly Palmer

Filing taxes isn't easy for anybody, but it can especially be daunting for millennials, who have less practice with the annual tradition, often undergo life transitions that impact their filing status and are frequently eligible for many of the constantly changing array of tax deductions and credits.

U.S. News sought out a handful of top experts to help 20-somethings navigate the process and leave as much money in their bank accounts as possible. Here are a dozen of their suggestions.

1. Coordinate your filing plans with your parents. If your parents plan to claim you as a dependent, then that affects your own filing status, so you'll want to be sure to coordinate plans with them, especially if you're still living with them or otherwise getting support from them, says Mark Luscombe, principal analyst for the tax and accounting firm at CCH, which is part of Wolters Kluwer. The Internal Revenue Service specifies that parents can claim qualifying children who are under age 19 or under age 24 and still a full-time student. The child can qualify as a dependent if they are earning below a certain amount a year; for 2013, it was under $3,900. "If you're living at home because you have no job, then yes, you probably qualify, but if you have a job, then you probably have to file on your own," Luscombe explains.

2. Take relevant education credits. Student loan interest is eligible for a deduction up to $2,500, says tax expert and U.S. News contributor Barbara Weltman.
She adds that you don't have to itemize your deductions in order to take it, but there are income limits. Other education-related credits include the American Opportunity Tax Credit, which offers a tax credit up to $2,500 for the first four years of college (there are also income limits on eligibility). The Lifetime Learning Credit, which covers courses for academic credit or career development, offers up to $2,000 could also apply, she says.

3. File electronically. Weltman urges millennials to file taxes electronically, as 90 percent of taxpayers do, which saves time and can also reduce errors. She adds that the Free File program from the IRS and tax software industry gives those earning below $58,000 access to free tax software.

4. If you moved for a job, you might be able to deduct the costs. Weltman points out that you need to have moved a certain distance, but if you qualify, then you can write off moving expenses, which includes the cost of moving household goods as well as driving from one location to the other. You don't need to itemize to take this deduction, she says, but you have to work in the new location full time for at least 39 weeks. This deduction applies to new college graduates, too, Weltman says.

5. If you bought a home, deduct your mortgage interest. For millennials who are already homeowners, mortgage interest is often eligible to be a tax deduction, but you'll have to itemize your deductions to claim it, Luscombe says. You can also check IRS.gov to see if other home-related expenses are eligible for credits, like energy-efficiency improvements.

6. If you have children, then an array of deductions and credits might apply. Parents can qualify for a dependent care credit if both spouses are working and they pay for child care; a child tax credit of $1,000 per child is also available, but phases out for higher incomes, says Luscombe. Parents can also take advantage of tax-advantaged college savings accounts for their children, such as 529 or Coverdell accounts.

7. Remember to update your name if you change it. Luscombe notes that newlyweds who change their name often forget to inform the Social Security office, which can cause problems with a tax return that appears to list an incorrect name. "That could be a reason for a return to get kicked back to you," Luscombe notes.

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at kpalmer@usnews.com.


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larry

These people that need tax tips this late in the game, being there are only 7 days left to file are those same people that feel entitled to Obama "freebies", food stamps, welfare, EBT cards, free healthcare and if they have a job, are those that wait to the last minute, are always late for a formal dinner and show up at 8:12 am for work,' when the job starts at 0800.

April 07 2014 at 6:59 PM Report abuse +1 rate up rate down Reply
1 reply to larry's comment
thefacts22

That is the typical liberal leech,always looking for freebies

April 07 2014 at 7:03 PM Report abuse rate up rate down Reply
rostra

Save your butts off. Why? There is not enough of you to support Federal, State, City & Town budgets, bloated now, and more so, when the rest of us Boomers retire. So unless the Feds wake up NOW, increase taxes, increase the percentages for Social Security & Medicare, cut budgets, and pay down debt, you poor kids will have it tough.

April 05 2014 at 2:24 PM Report abuse +2 rate up rate down Reply
1 reply to rostra's comment
thefacts22

All our Federal,State,City and Town budgets are UNSUSTAINABLE,way to many leeches and crooks

April 07 2014 at 7:06 PM Report abuse rate up rate down Reply