Dear Relatively New To Thinking About Taxes, I think that there are at least 10 things everyone 30 and under should know about taxes. Let me start by telling you how I came to that conclusion.
I was a teenager when I got my first job. The thought of having new money was so exciting! I had plans to save some. But, even more exciting was the fact that I had plans to carve out a hunk of it to set aside for spending. (New shoes or video games?)
So, at the end of the first two-week pay period, I received my check, and it was a lot lower than I had anticipated. What the heck! I thought maybe they had not included all of my hours. So, I flipped over to the stub attached to the check and found all of the details…details about which I had never previously been taught. There were a lot of taxes deducted.
Now, I was not yet an adult. So, while I did not like those taxes, other than letting me know that I would not be bringing home as much as I had hoped, I did not think much about them for several years.
Fast forward to my adult years and I realize that one of the biggest expenses that Americans can have throughout their lives is taxes. Just as my income increased a lot as an adult, much to my chagrin, so did my taxes. With that in mind, I am suggesting 10 things that everyone ages 30 and under should know about taxes.
What Are 10 Things That Everyone 30 and Under Should Know About Taxes?
What are taxes?
Tax is money that we pay to our government. These taxes fund the things that the government provides. For example, in the United States we have what are called public services. Some of these services are provided by the federal government, Other services are provided by the state and local governments. Examples of services covered by taxes include roads and schools.
Types of Taxes
There are a lot of different types of taxes. Some common taxes include: federal income taxes, state income taxes, property taxes, lodging taxes, and sales taxes.
Is One Filing Status More favorable?
The most favorable filing status is married filing jointly.
Filing Your Taxes On Time
If you do not file your taxes on time, you will likely pay a penalty. That failure to file penalty is 5% of the amount you owe for each month (or part of month) that the tax return is late.
Failure To Pay
In addition to there being a failure to file penalty, there is also a failure to pay penalty. The failure to pay penalty is charged when you do not pay what you owe by the due date.
Tax Deductions and Tax Credits
Tax deductions and credits are things that can reduce the amount of taxes that you owe. You should always be on the lookout for qualifying for them.
A deduction is subtracted from the amount of income that you have for a given year. The less income that you have, the lower your taxes.
A credit is an amount that you deduct from the amount that you owe, thereby reducing the amount that you owe or even increasing your refund (the amount that some people get back) from the government. Something that I learned when I trained to become a Volunteer Income Tax Assistance (VITA) volunteer is that some credits are refundable. This means that a refundable credit may allow you to get some money back even if you do not owe any taxes.
Gambling Losses
If you have a lot more in gambling losses than gambling winnings, and are hoping to deduct all of the losses, you may be in for a stun. You may not deduct more gambling losses than you have won.
Living in a unit of a multifamily rental property that you own can be financially beneficial (as opposed to living in a single family home). One way that you can benefit is on taxes. For instance, you can depreciate the rental part of the property. Depreciation reduces your taxable income. Also, you may be able to deduct expenses against the income on the rental portion of the property.
The Augusta Rule
You should learn about the Augusta Rule. The rule was originally set up to benefit the residents of Augusta, Georgia, who rent their home (their primary residence) during the Master’s Golf tournament. They are renting their homes out during this time because there are not enough hotel rooms. The end result is that the Augusta Rule allows people (anywhere in the United States) to be able to rent out their primary residence for up to 14 days per year, without the income being taxable. This money does not have to be included in your income. Of course, everything should be well documented, and the amount that you can charge must be in-line with what the rental market in your area supports. (Check all of this out with your tax specialist.)
Tax Preparer or Tax Strategist?
As your income increases, and/or the number of streams of income increases, you may want to consider seeking help from a tax advisor or tax strategist, rather than someone who is only a tax preparer. They may be harder to find. But, I think that they can be totally worth it.
10 Things Everyone Under 30 Should Know About Taxes: Key Takeaways
- Tax is money that we pay to the government that is then used to fund the things that the government does.
- There are several types of taxes.
- The most favorable filing status is married filing jointly.
- There is a penalty for failure to file your taxes on time.
- There is a penalty for failure to pay the taxes that you owe.
- You may not deduct more in gambling losses than the amount that you have won.
- Tax wise, living in a unit in your rental property can be financially beneficial.
- Tax deductions and credits are things that can reduce the amount of taxes that you owe.
- You should learn about the Augusta Rule, and how it allows for some tax-free income.
- At some point in your financial life, you may find it more beneficial to work with a tax advisor or tax strategist, than simply working with a tax preparer.
There you have it…10 things that you should know about taxes as a young person.
However, the United States Tax code is long and complicated. The U.S. Tax Code is reportedly 6,871 pages. That does not include the federal tax regulations and the official tax guidance, which supposedly increases the number of pages to approximately 75,000. So, obviously, there is a lot more to it.
Reminder: I am not a CPA or accountant. Do not take anything that I say as tax advice. Talk to your CPA or attorney to see how the things mentioned may or may not apply to your situation.
Make your life better than yesterday, in at least some small way. (Maybe by finding at least one way to at least understand your taxes better!) You can do it! I have faith in you.
Hugs,
Rich Mom
Looking for more? You can check out these posts:
Understanding Checking Accounts
12 Things to Know About Social Security
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