Doing your taxes is one of the most adult things I can think of. It’s also something that makes a lot of young adults nervous.
It’s no secret taxes can be confusing – and boring. But everyone has to file taxes, whether they’ve been prepared by you or someone else on your behalf.
Many young adults put off doing taxes or have someone else do it for them. While it’s advantageous in some situations, the average twenty something probably doesn’t need to hire someone to do their taxes for them. And they most certainly shouldn’t be putting it off (get your $$!).
My goal in this post is to inform you about taxes in the least boring but most informative way possible. Luckily, I have help from Amanda, a 20-something college student who is a tax preparer in her spare time.
Like me, Amanda is passionate about helping people make better, more informed financial decisions. I asked her a ton of questions about taxes, so without further ado, here they are!
What Forms Do I Need For My Taxes?
Most people in their 20s only have a few forms they need to collect for taxes. They can consist of:
- You get your W2 from your full or part time employer. Usually these are sent to you by the end of January.
- If you have stocks, you get taxed on the dividends. You’ll get a 1099-DIV from whichever company you have stocks with (E*Trade, Vanguard, etc.).
- If you have a bank account, you have to pay money on interest from it. If the interest is over $10, they’ll send you a 1099-INT. If it’s less than $10, you probably don’t need to worry about it.
- If you have done any contract work, you may get a 1099-MISC. Contract work can include any company where you’re not technically an employee and haven’t paid taxes on your earnings yet, like Wag!, Postmates, Uber, etc. They’ll send you this form usually if you’ve made over $600 with them.
- All income is considered taxable by the IRS – there is no “under the table” – so plan on reporting this income in case of an audit (aka in case the IRS double checks your work)
- If you’ve attended college within the last year, your school will send you a 1098-T. It’ll help you pay less in taxes since you were in school!
You may have more tax forms, but these are the most common for twenty somethings. Once you have all your forms together, you can start doing your taxes. You’ll need these forms whether you’re doing your own taxes or having someone else do them for you.
Tax forms aren’t puppies, but if you need to pretend they are to help you go looking for them, go for it.
What Is My Filing Status?
One of the first things you’ll have to figure out when you do your taxes is your filing status. The most common options are:
- Married Filing Jointly
- Married Filing Separately
Amanda says most twenty-somethings will fall into the single or married filing jointly category. Everyone who is not married should file as single.
If you provide more than 50% support a parent, grandparent, or a child and are not married, consider filing Head of Household. If you had a spouse pass away within the last three years, consider the Qualifying Widow(er) status.
If you are married…
If you’re married, you have two options. Amanda recommends everyone who is married file jointly for maximum tax benefits. Take advantage when you can!
Even if you are separated, she says, you should file jointly as long as you can amicably distribute the refund between the two of you. You can file together as long as you lived with each other after July 1st of the tax year. If you lived apart before July 1st until the end of the year (the last six months), the government considers you legally separated and you would file as single.
I’ve Heard About Tax Write-Offs. What Are They And How Can I Use Them?
Amanda told me there are two options when you file your taxes: taking the standard deduction and itemizing (or Itemized Deduction). Both allow you to deduct money from your taxes, but you want to figure out which will get you more money.
Now this takes a bit of math, and can seem boring. And honestly, it is pretty boring. But knowing the difference will save you money, which you can use to buy a hot tub, and hot tubs aren’t boring.
Let’s start with answering what a deduction is.
I’m going to get into a little bit of math, so brace yourself!
Let’s say you’re a badass and make $100,000 per year. Without any deductions, you will be taxed on the full $100k.
Let’s say you’re getting taxed 20% of that $100,000 (this isn’t how American taxes really work*, but just for the sake of the illustration, we’ll go with it). If you don’t take any deductions, you’ll have to pay $20,000 in taxes.
*Americans are taxed marginally, so these numbers aren’t exact, but they’re close enough for you to get the idea.
But if you take a deduction, you can pay less. Let’s say you take a $12,000 deduction (which happens to be the standard deduction for singles). You will then be taxed on $100,000 – $12,000, which is $88,000.
20% of $88k is $17,600. So if you take the standard deduction, you are paying $2400 less in taxes! That’s enough for a really nice hot tub!
If you’re an equation person, this is how you can think about deductions:
Your income – deductions = your taxable income
What’s awesome about the standard deduction is it’s super easy to take. Everyone gets it! All you have to do is indicate you’re taking it on your taxes.
If you’re a picture person, this is how you can think of the standard deduction:
Extra info if you’re married and/or have kiddos:
If you’re married, the standard deduction is $24,000! You can do the math and see how many hot tubs you can afford with that tax benefit.
Oh, and you also get credit for your kiddos if you have them. You can receive an extra $2,000+ per kid depending on your circumstances!
Okay, But What’s Itemizing?
Itemizing your deductions means you’re telling the government exactly how much money they can subtract from that $100,000. According to Amanda, things you can itemize include:
- Large medical bills (exceeding 7% of your income)
- Donations to religious organizations
- State property taxes
- Amount of money lost due to theft or federally declared natural disasters (over $500)
Itemizing requires a lot more work than taking the standard deduction. The standard deduction is automatic, while itemizing requires proof of everything. That means you have to save receipts all year long!
If you’re a picture person, you can think of itemizing deductions like this:
Should 20 Somethings Itemize or Take the Standard Deduction?
For most people, Amanda says taking the standard deduction will save you the most money. Luckily, the standard deduction is super easy! Most tax preparation services will do that automatically for you.
Should I Hire Someone to do my Taxes in my Twenties?
Amanda says most people in their 20s can get by just doing their taxes themselves through H&R Block or TurboTax online. They have free options, too!
She says you should seek a tax preparer’s help if:
- You want to educate yourself on how to do your taxes
- You itemize your deductions, since it can be complicated
- You’re a student and your cost for school is high. They can help you find the best deductions and credits
- You just don’t want to do your taxes and don’t mind paying someone else to do them
- You have a crush on someone at your local H&R block and are tryna holla (okay this is my addition)
I’ve Heard of Some Tax Scams. Are They Common?
One of our readers from Canada wrote in and told me tax scams are becoming quite the problem there – especially for people 18-32! I asked Amanda if she’d noticed anything similar here in the US.
Amanda says tax scams are unfortunately very common here, too. And not just for your grandparents.
Here are some of Amanda’s tips to make sure you don’t fall victim to a tax scam:
Use a Secure Internet Connection
When you’re doing your taxes, make sure you work on them using a secure internet connection. Your house wifi is probably fine, but coffee shops, public libraries, and airports are big no-nos. You might be surprised how easily people can hack into those connections.
Only Do Tax-Related Things Through Official Paperwork or the IRS Website
Amanda emphasized the IRS is very old fashioned. They will never call or email you asking for your information. Don’t work on your taxes anywhere but on official IRS paperwork, irs.gov, or any site listed on the IRS’s website for e-filing.
You call the IRS, they will NEVER call you.
Okay guys, you can tell by the amount of GIFs in this post how committed I am to your financial education. It’s not the most exciting topic, but that’s why people like Amanda are actual angels for explaining taxes to the rest of us. Thank you for sharing your knowledge with the world, Amanda!