5 Essential Tax Tips for Millennials to Lower their Tax Bills
Thinking about filing our taxes comes with a feeling of confusion and stress for many of us, especially those who aren’t experienced enough with the whole process of filing their income tax and covering their balance. This is particularly true for the younger generations, Millennials and Gen Z who have recently started earning a steady income. Even when it might sound hard at first, there are many different ways in which we can lower our tax bills, making smart financial decisions and patiently waiting for the benefits to kick in. These are some of them.
One of the most efficient ways to save on tax payments is by taking advantage of the retirement plans many companies offer to their employees. Opting for a Traditional 401(k) or a Roth 401(k) account can help us save on taxes in the short or long run or even both. With these accounts, we have a salary deferral that goes straight towards our retirement account, which we would be able to access when we reach retirement age. With a Roth account, we would enjoy tax-free cash flow when we are no longer working, which is a great long-term advantage.
Choosing to purchase a life insurance policy is another great strategy that can come with some tax advantages, yet many young people tend to delay this process until later in life. Besides the benefits of having life insurance, most whole life policies offer the opportunity of withdrawing accumulated tax value on a tax-favored basis. However, we need to keep in mind that every plan and every policy and every company will have a different set of criteria. Therefore, we need to make sure we get advice from a professional, knowledgeable, and trustworthy insurance professional so that they can guide us through choosing the best plan for us.
When it comes to income tax saving tips for millennials, we need to remember that the younger generations tend to land part-time jobs or choose to work on their own. Self-employment comes with many tax benefits in the form of deductions that we can take advantage of. Home office deductions, for example, are a great way to lower our tax bill if we use a portion of our house to run our own business. We can also benefit from choosing the most appropriate business structure for our company, even if we are the owners and only worker. If we work with a knowledgeable advisor, they will be able to help us come with the best strategy for our business.
If we are looking for a long-term investment that will also help on our tax bills, homeownership is a great way to achieve this. There are many benefits that come from being a homeowner, such as the security of having a place to live, and the investment opportunity it represents if we choose to upgrade and sell our property when the time is right. However, we are also eligible for property tax deductions, which can significantly lower our tax bills if we meet certain criteria. In order to determine whether this would work for you, contact a professional tax advisor with experience in real estate and property taxes.