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Anya Kamenetz Generation Debt

Anya Kamenetz, Generation Debt

Top Tax Tips for Younger Filers

by Anya Kamenetz

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Posted on Wednesday, March 12, 2008, 12:00AM

Filing your taxes is kind of like going to the dentist: It may not be fun, but dealing with it is part of being a grownup.

So with Tax Day one short month away, I turned to an expert for advice aimed especially at us younger and newer filers. Kay Bell is a Texas-based journalist who has covered tax tips for Bankrate.com since 1999 (check out their 2008 tax guide here).

She also writes one of the most readable and entertaining tax blogs on the Web: Don't Mess With Taxes.

Here are Kay's and my top tax tips for GenDebt.

1.) Take the easy way out.

Put your technology skills to work. Online filing can be fast and cheap -- even free. "Tax prep software has gotten better every year," says Bell. If you make less than $54,000 per year, you can use the IRS Free File site directly.

Or you can try the free version of the TaxACT program.

You might also be able to get a free version of TurboTax or H&R Block's Tax Cut software. Check with your bank or financial institution to see if they have any deals.

2.) But not too EZ.

Bell says one of the biggest mistakes young filers make is going straight for the one-page 1040EZ form.

"A lot of young people might have student loans, and they can deduct the interest, but not on the 1040EZ," she says. "They need to use a 1040A or the long 1040."

3.) Be a savvy student.

About that student loan interest deduction: Those who earn less than $65,000 a year can take up to $2,500 off their adjusted gross income for the interest (not the principal) paid annually on student loans. This counts for both federal and private student loans. If you're still enrolled in a qualified higher education institution, you can also claim a HOPE tax credit for up to $1,650 for your tuition and fees.

Importantly, Bell notes, these are "above-the-line" deductions, meaning you don't have to itemize them (break them down, rather than taking the standard deduction) to claim them.

4.) Adjusting to the working world? Adjust your income.

Another surprising above-the-line deduction: the expenses for your first big move and first job.

"Let's say you got out of college at Ohio State, and you're moving to take a job offer down in Atlanta," says Bell. "Be sure to keep a record of your U-Haul and moving expenses." All of this can be written off on the 1040 Long Form only.

After your first job, you can deduct job-hunting expenses like resume prep when you look for another position in the same field, but you have to itemize to take these deductions.

5.) Online tools can help the self-employed.

Lots of younger workers are starting out as freelance, permalance, or independent contractors. If you're getting paid on a 1099 instead of a W-2, you need to fill out a Schedule C form to itemize your business expenses.

Here, take your time and be thorough. For example, don't forget home-office expenses -- you can deduct a proportion of your rent, Internet, and utilities if you work from home (although your work area should be exclusively delineated and reserved for work).

Also, you can deduct your premiums if you buy your own health insurance -- which you should!

Online tools can help you keep organized when it comes to all of these deductions, which is extremely important. "People end up cheating themselves," says Bell. "They have a lot of expenses and they're not remembering them, and it's awful hard to reconstruct things."

As a freelance writer, I've been dealing with this since I first filed taxes. This year, I went through my online GCalendar month by month to remember all the dates where I incurred business-related travel or entertainment expenses (e.g., lunch with an interview subject). My Amazon account showed what books I'd bought for research, and my cell phone bills served as a log, allowing me to figure out the percentage of calls that were made to business-related numbers.

Kay also suggests using online mapping tools to reconstruct your mileage if you drove anywhere for work. Of course, you should be able to back up every deduction with a receipt.

Another important thing to remember: If you are a freelancer and taxes are not being taken out of your paychecks, you must file estimated tax payments each quarter. If not, "you're technically in violation of tax law," says Bell. Eep.

An online tool that can help you with this task is the Electronic Federal Tax Payment System. 

6.) Get the maximum benefit out of your benefits.

If you read this column, you already know the long-term reasons to fund your tax-sheltered retirement account. If it's a Roth IRA or Roth 401(k), you still have to pay taxes on your contributions (with the advantage of taking the money out tax-free when you retire). But if your employer offers a regular 401(k), those contributions will reduce your tax liability.

Another employer-provided tax benefit that Bell says people often overlook is a flexible spending account for medical expenses. Put, say, $500 into it for your co-pays and dental deductibles -- even over-the-counter medications -- and you can take that amount off your taxable income.

7.) Know when to get extra help.

There are certain times when younger filers should seek help from a human being, whether at a storefront chain like H&R Block or Jackson Hewitt, or with a qualified CPA. You may want to do this if you've started your own business, sold some property, or have a large amount of investments, all things that will make your tax filing more complicated. Or, says Bell, "if you're just too danged busy and you're going to be rushed. You never want to get in a rush when you're doing your taxes."

8.) Beware the refund.

Everyone knows that a fat refund is your reward for going through the mind-numbing process of tax filing, right? Well, think again. A "refund" just means you let the government hold on to too much of your income all year, like giving them an interest-free loan.

"If you find you're getting a large refund, go to your human resources office and fill out a new W-4," says Bell. "You want to have just as close to what you're going to owe taken out as possible."

Another refund pitfall: If you walk into a tax-prep chain, watch out for any refund anticipation loans they offer. They'll cost you a bundle in the long run.

9.) Get your stimulus payment.

Finally, this year there's yet another cash incentive to file -- your economic stimulus payment of $300 to $600, scheduled to go out in May and based on your 2007 return. The IRS is encouraging even those whose incomes are too low to need to file to go ahead and do it this year. 

While the $150 billion stimulus package is supposed to get Americans to go out and spend their refunds, a better option for many members of Generation Debt is to -- yes -- pay off debt or invest the money.

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51 Comments

Showing comments 6-35 of 51<< PreviousNext >>
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  • Matthew S - Tuesday, March 18, 2008, 1:50AM ET  Report Abuse

    • Overall: 5/5

    Damn gina, You Hot. Wanna move to the Mur.

  • yellowmoon - Monday, March 17, 2008, 7:46PM ET  Report Abuse

    • Overall: 1/5

    Microsoft needs to buy yahoo ASAP.

  • Gandalf The White - Monday, March 17, 2008, 10:18AM ET  Report Abuse

    • Overall: 5/5

    She is hot, but if you need to tell her just make your way to her and try to say it in her own ear. That will tell more of your manship, than hiding behind a keyboard.

  • draked - Sunday, March 16, 2008, 8:20PM ET  Report Abuse

    • Overall: 5/5

    Damn baby...u hot!

  • D - Sunday, March 16, 2008, 3:39PM ET  Report Abuse

    • Overall: 1/5

    America: Freedom to Fascism has the real story on taxation for the young AND old taxpayers. Google it.

  • Jeffrey - Sunday, March 16, 2008, 11:04AM ET  Report Abuse

    • Overall: 2/5

    I think this article, like David Ramsey on the radio, way too often try to give advice in a simple forum for way too complex issues. Trying to take issues such as taxes and come up with short simple answers is very poor advice. There are very few people that should ever file their own tax returns online. It's free and oftentimes costs the family thousands of dollars, and they have no way of knowing it. e.g. When should an "adult child" living with it's siblings in a home owned by the parents claim the siblings instead of the parents, although the "adult child" contributed no financial support to it's siblings, But they can "save money" by filing their own return on line under a free file program?? e.g. 2, How much money should a "young filer" put into what kind of IRA or IRA's? When do all taxpayer's actually pay for up to 75% of the IRA contribution instead of thr individual taxpayer filing the return? But they can "save money" by filing their own return on line under a free file program? e.g. 3 Married couple, one spouse works, other spouse receives Social Security Disability. Can the spouse receiving Social Security make a contribution into an IRA? What kind of IRA? What impact would this contribution have on a taxable amount of social security received? How many millions of people in the USA, have a spouse on social security and other spouse working, which causes social security to be taxable up to 85% of it, but they may make a contribution to a traditional IRA and not only lower the taxable amount of the social security but oftentimes get a retirement savings credit (usually 10% - 20% of contribution amount up to $2000). But they can "save money" by filing their own return on line under a free file program? Jeff D EA Evansville, IN jad012547@yahoo.com

  • Jeff C - Friday, March 14, 2008, 7:42PM ET  Report Abuse

    • Overall: 4/5

    Bouassi, learn how to spell and I hope that for your sake your knowledge of the US tax code is more abundant than your vocabulary..And as for the yahoo user that rated Anya so high as a "Spitzer" sycophant, she would probably rate him a 3 1/2....

  • cristin - Thursday, March 13, 2008, 7:47PM ET  Report Abuse

    • Overall: 4/5

    Great article, but i have a question: What in the hell is a permalancer?

  • adadey - Thursday, March 13, 2008, 6:07PM ET  Report Abuse

    • Overall: 1/5

    comment 9 is really ridiculous..Spend it folks...this is not a refund its a rebate!..Anya is clueless...

  • Ray - Thursday, March 13, 2008, 3:12PM ET  Report Abuse

    • Overall: 5/5

    Flawless article. Anyone moron who gave this one star should go join Elliot Spitzer in the Hall of Shame. Did you read the title? "Top Tax Tips for Younger Filers." I'm not that young, but I read it anyway. It delivered what was promised. She covered the stated topic inpeccably, and the piece was easy to read and understand. If you already know everything here, then good for you. Maybe you could be a Yahoo Finance columnist too someday, if you ever learn how to write as well as Anna. If you need something more challenging to read, get a book on rocket science or read something by Alan Greenspan. But don't knock this writer for providing information that is very timely and useful for many young people.

  • Yahoo! Finance User - Thursday, March 13, 2008, 1:13AM ET  Report Abuse

    • Overall: 4/5

    Only thing I would add is to do a tax return once on paper just so you understand where the numbers are coming from. We had to do this in high school once as an assignment, it was embarrassing how many people couldn't do it.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 9:49PM ET  Report Abuse

    • Overall: 1/5

    What kind of "expert" is this person. The information she provides is very basic and available all over the net. Obviously, Yahoo loosely defines "expert." If she is what Yahoo thinks is an expert then they would be better off as a division of Microsoft. One thing readers need to realize is that e-filing is not the wisest choice. The government pushes it to make it easier to input your data into their audit algorithms. In this age of rapidly increasing and aggressive audits, everyone should consider sticking to old fashion paper and filing on April 14.

  • Brian - Wednesday, March 12, 2008, 9:49PM ET  Report Abuse

    • Overall: 4/5

    Since this article is targeting the college age taxpayer it is not going to be super involved. It does give good advice to people who may not have a complicated tax situation, but may miss some things that will cost them money. For those ranting about the Hope Education credit, you seem to forget that student loan interest is deductable up to $2500, and this can be claimed even if the taxpayer does not itemize. Not as good a tax credit to be sure, but every $ helps.

  • Michael H - Wednesday, March 12, 2008, 9:38PM ET  Report Abuse

    • Overall: 1/5

    Anya is the next Suze Orman - making a living by marketing her half-ass advice. I give her credit for making a living out of it, but no points for substance. The Hope Scholarship is for first and second year students, which won't help the audience of this article - young professionals. As someone mentioned earlier, the Lifetime Learning credit is more useful for young professionals looking to take Graduate classes. Although, it does begin to phase out between $47,000 and $57,000.

  • wealthencyclopedia.com - Wednesday, March 12, 2008, 9:10PM ET  Report Abuse

    • Overall: 1/5

    How about a separate site for Ms. Kamenetz - call it "clueless about money" - putting her stuff on Yahoo Finance is silly - of course this level of editorial quality explains why Yahoo stock is in the dumpster.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 7:05PM ET  Report Abuse

    • Overall: 1/5

    Lame, all you have to do is go to HR Block, and they do your taxes for you, and you get all the deductions, as they ask you questions. Shes hot though, so maybe she should go work as a client for Gov. Spitzer, Id give her 7 diamonds.

  • KenR - Wednesday, March 12, 2008, 5:57PM ET  Report Abuse

    • Overall: 2/5

    Simple but good advice overall. Nothing earth-shattering, but good general knowledge for young readers. However, I noticed one fairly large weakness/omission in the article. For most students, the HOPE tax credit is not nearly as good as the Lifetime Learning tax credit - the latter offers a higher limit ($2,000 per year) and can be taken regardless of whether or not the student has completed their 1st 2 years of undergraduate work (HOPE is only for the 1st 2 years). I only know this because we took advantedge of this tax credit this year. Seems to me that it should have come up in her research though, as info on both tax credits are listed together on most web pages that cover 1 of them. Anyway, if you're a junior or senior, the Lifetime Learning tax credit is a great thing to consider. Not sure if you can claim both credits. Good luck!

  • Grand F - Wednesday, March 12, 2008, 5:54PM ET  Report Abuse

    • Overall: 1/5

    This woman's columns are consistently boring and an amalgamation of all the other personal finance issue on the web. ....doesn't bring much to the table, here or in any other article.

  • looneytarian - Wednesday, March 12, 2008, 5:44PM ET  Report Abuse

    • Overall: 2/5

    For the young, doing taxes is about as exciting as doing homework. However, if you start learning to do it at a young age, you will be doing yourself a favor whether you continue doing them yourself or going to a CPA or tax accountant. Even if you want to leave it to a professional, you should learn enough to review and understand whether the finished form(s) are accurate. Anya's suggestion about using tax software is not bad. I started using Taxact years ago and my father just started using TurboTax. Both are very user friendly and TaxAct provides tips, instructions and links to the IRS and other tax info sites, if you have questions. For the most part, you only have to answer the questions the software asks you, but it is very useful as a learning tool. It also gives you options for e-filing. The cost of tax software is much less than if you pay for people. As far as the W-4, I have always preferred to have more taken out than needed. I figure it is easier to budget myself to the lower weekly check and get a refund than to have a few extra dollars a week to spend and then have to scramble to come up with a few hundred dollars to pay the IRS in April. I have never had to pay the IRS yet and hope to never have to.

  • Don - Wednesday, March 12, 2008, 4:54PM ET  Report Abuse

    • Overall: 1/5

    Ms. Kamenetz's does not seem to understand that age has nothing to do with paying income taxes, unless one is a minor. Her advice might be appropriate for a high school class, but not for Yahoo Finance.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 4:52PM ET  Report Abuse

    • Overall: 1/5

    The term "Above-the-Line" refers to above or below the Adjusted Gross Income line. The Hope Education credit is reported on Line 49, which is calculated after your taxable income; thus the credit is considered below-the-line. If you have no idea what you're doing with taxes, please don't take advice from Anya. Instead, get professional help because the IRS will notice.

  • David - Wednesday, March 12, 2008, 3:55PM ET  Report Abuse

    • Overall: 3/5

    The income limit (AGI) for student loan interest is $135K for married couples.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 3:24PM ET  Report Abuse

    • Overall: 3/5

    Good, but not great. The main idea is "not to be a complete idiot". Which does not help real idiots and doesn't to any good to those who aren't. And, by the way, if you are not self-employed, no matter how you adjust W-4 (within legal limits) you always wound up paying too much.

  • george - Wednesday, March 12, 2008, 3:12PM ET  Report Abuse

    • Overall: 1/5

    anya, more like aneurism from reading this. sometimes i wonder why i read her column and realize it may because her name is anya. and ya know that sounds just like anna kournikova. and she looks good to. if she is so in tune to generation debt why not explain education condolidation loans and something that people with an iq over 4 might be interested in.

  • RENEE - Wednesday, March 12, 2008, 3:08PM ET  Report Abuse

    • Overall: 1/5

    How many more scandals should there be before recommending H&R Block or Jackson Hewitt is considered bad advice?

  • groblix - Wednesday, March 12, 2008, 3:00PM ET  Report Abuse

    • Overall: 5/5

    Pretty good advice. Four stars for the content, and an extra one just for the pout!

  • Yahoo! Finance User - Wednesday, March 12, 2008, 2:49PM ET  Report Abuse

    • Overall: 4/5

    Pretty good advice, as usual. Filing the 1040EZ is okay, though, if you don't have enough deductions to make itemizing worthwhile.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 2:40PM ET  Report Abuse

    • Overall: 2/5

    For tuition deductions, students are only eligible to take the Hope credit in their first two years of undergraduate education. The Lifetime Learning credit can also be used for qualified expenses in any year even those in which the taxpayer is eligible for the Hope Credit. The Hope and Lifetime Learning credit cannot both be used in the same year - you have to choose which is better and the Lifetime Learning yields a higher credit when qualified tuition expense is greater than $8,250. This number assumes you're filing a 2007 Federal Income tax return.

  • Yahoo! Finance User - Wednesday, March 12, 2008, 1:26PM ET  Report Abuse

    • Overall: 5/5

    Jeez, this multiposting one star guy has got to get a life. Are you doing this all at recess? Was a girl mean to you once?

  • Yahoo! Finance User - Wednesday, March 12, 2008, 1:17PM ET  Report Abuse

    • Overall: 4/5

    Good article Anya, young people need advise. Of course most young people can`t hear you because their I pod is plugged into the ears but they can read a computer screen while their text messaging. Kidding a side I like the younger generation they are broke but they will definitly beat you at Halo 2 and eat all the food in your house. I think you next article should be on how to clean your room and not spend all your money at the coneivence store. The younger generation needs your help Anya. PS I`ll bet you clean your room!!!!!!

Showing comments 6-35 of 51<< PreviousNext >>

More from Anya Kamenetz

Read the Generation Debt Book

According to economics professor Laurence J. Kotlikoff, Generation Debt offers "a truly gripping account of how young Americans are being ground down by low wages, high taxes, huge student loans, sky-high housing prices, not to mention the impending retirement of their baby boomer parents." Generation Debt will inspire you to take charge of your financial future.

Read more from Anya Kamenetz here and here.

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