Growing up, our parents taught us many valuable lessons to lay the groundwork for life on our own. We learned how to share and why we should tell the truth. We learned the importance of respecting others and being on time. They taught us how to properly do laundry and why we can’t eat ice cream for every meal – at least not every day.
These were universal life lessons. They were something we all needed to learn and helped us transition into adulthood much smoother. But one lesson in life that’s not universal is how to do your taxes.
For many of us, our careers and financial situations look much different than our parents’ did in their twenties and thirties. They certainly are different from their situations now.
Because our situations are so different, here are five reasons you shouldn’t file taxes the way your parents do.
Side hustle income
The rise of the gig economy has made it simple for just about anyone with a reliable internet connection to start earning some extra dough. This side hustle income, as it’s commonly called, helps catapult you toward your financial goals – especially at a time in your life when it can feel like you’re barely keeping up with the bills.
The only glitch in this type of income is that taxes are rarely taken out up-front. That means you need to either pay quarterly estimated taxes or pay up when you file your tax return.
In many instances, our parents have one job and one tax return to file. But, if you generate extra income from a side gig, you have to track down 1099s from each of the clients you worked for. Accounting for all the additional money you earned is critical when filing your tax return.
Often times the most difficult part of filing your taxes is keeping a record of who hired and paid you all year. Fortunately, TaxAct makes it simple for you to handle multiple income streams with their Premium Edition software for those freelancers, contractors and the self-employed.
Side hustle income is great, but being self-employed full-time is a completely different scenario. Being self-employed doesn’t offer the same benefits that traditional jobs offer, like a 401(k), insurance, and a steady paycheck with taxes taken out upfront.
In this instance, it’s entirely up to you to not only file taxes quarterly but to pay for your insurance completely out-of-pocket, to remember to deduct it on your taxes and to fund a retirement account. There’s a good chance Mom and Dad aren’t navigating the same concerns on their tax returns.
The vast responsibilities that come along with being a self-employed individual may leave you feeling panicked about handling your tax return and all the deductions by yourself. But, luckily, that’s what intuitive software is for.
Fortunately, today’s technology makes it a lot easier than you think. It’s now possible to file your own tax return online. Do-it-yourself tax software companies, like TaxAct, provide a variety of resources to help you beat the system and file your taxes without needing to worry about missing a deduction or credit.
Student loan payments
The average undergraduate left college in 2015 with over $30,000 in student loans. While that amount of debt isn’t ideal as you first venture out into the working world, the government does offer a little tax relief to help shield the burden.
For instance, you can take a deduction on the student loan interest you paid. This deduction is the lesser of $2,500 or the amount you actually paid during the year. Additionally, you may be eligible for the Lifetime Learning Credit if you went back to school (perhaps to obtain your masters or for a continuing education class) and your parents don’t plan to claim you as a dependent.
It’s a digital world
You’re a digital native by birth, so it probably feels a bit more natural for you to go through the process of online filing than it does for your parents.
Online filing simplifies the process of doing your taxes, prompts you if you missed something, and asks all the right questions to minimize your tax burden. It’s a great way to file your taxes quickly and learn what money decisions you make throughout the year that impacts your taxes the most.