Hey, fellow Gen Zers! If you’re like me, you probably have a lot of questions about taxes. How much money do I need to make before I have to file taxes? What tax deductions can I claim? How do I file taxes for my freelance or side hustle income? And what the heck is a crypto or stock trading tax? How to Slay Your Taxes as a Gen Z….
Don’t worry, I’ve got you covered. In this blog post, I’ll answer some of the most common tax-filing questions from our generation and share some tips on how to save money on taxes. Whether you’re a student, an employee, or an entrepreneur, you’ll find some useful information here. Let’s get started!
Do I Need to File Taxes?
The answer depends on whether your parents still claim you as a dependent. If you’re not a dependent, you’ll need to file taxes if you earned more than the standard deduction for 2023 ($12,950 for single filers and $25,900 for joint filers). If you’re a dependent, you’ll need to file taxes if you earned more than $1,100 in unearned income (such as interest, dividends, or capital gains) or more than $12,950 in earned income (such as wages, salaries, or tips).
What Tax Deductions Can I Claim?
A tax deduction or tax write-off lowers your taxable income and thus reduces your tax liability. You subtract the amount of the tax deduction from your income, making your taxable income lower. There are many tax deductions you can claim, depending on your situation. Here are some of the most popular ones:
- Standard deduction: This is a fixed amount that you can deduct from your income, regardless of your expenses. For 2023, the standard deduction is $12,950 for single filers and $25,900 for joint filers. You can claim the standard deduction unless you choose to itemize your deductions, which means listing all your eligible expenses and deducting them from your income.
- Student loan interest deduction: If you paid interest on a qualified student loan, you can deduct up to $2,500 of that interest from your income. You don’t need to itemize your deductions to claim this one. However, there are some income limits and other requirements that you need to meet ³.
- Tuition and fees deduction: If you paid tuition and fees for higher education, you can deduct up to $4,000 of those expenses from your income . You don’t need to itemize your deductions to claim this one either. However, this deduction is set to expire after 2023, unless Congress extends it .
- Education credits: These are not deductions, but credits that reduce your tax bill dollar for dollar. There are two main education credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) . The AOTC is worth up to $2,500 per eligible student and covers the first four years of college. The LLC is worth up to $2,000 per tax return and covers any level of education. You can only claim one of these credits per student per year, and there are some income limits and other requirements that you need to meet .
- Retirement account contributions: If you contribute to a pre-tax retirement account, such as a 401(k) or a traditional IRA, you can deduct those contributions from your income . This lowers your taxable income and helps you save for retirement. However, there are some limits on how much you can contribute and deduct each year .
- Self-employment expenses: If you have income from freelancing or a side hustle, you can deduct your business-related expenses from your income . These include things like equipment, supplies, advertising, travel, home office, and more. However, you need to keep track of your income and expenses and report them on Schedule C (Form 1040) .
These are just some of the tax deductions you can claim as a Gen Z. There are many more, depending on your specific situation.
How to File Taxes for Crypto or Stock Trading
If you invested in crypto or stocks, you need to report your gains and losses on your taxes. A gain is what you earn from selling an asset for more than you bought it. A loss is what you lose from selling an asset for less than you bought it. The taxes you pay on your gains and losses depend on whether they are short-term or long-term .
- Short-term capital gains and losses: These are from assets that you bought and sold within one year. They are taxed as ordinary income, at your regular tax rate .
- Long-term capital gains and losses: These are from assets that you bought and held for more than one year. They are taxed at a lower rate than ordinary income, ranging from 0% to 20%, depending on your income level .
To calculate your capital gains and losses, you need to know your cost basis and your selling price for each asset. Your cost basis is the amount you paid for the asset, including fees and commissions. Your selling price is the amount you received for the asset, minus fees and commissions. You subtract your cost basis from your selling price to get your gain or loss .
You also need to keep track of your transactions and report them on Form 8949 and Schedule D (Form 1040) . You should receive a Form 1099 from your broker or exchange that shows your transactions and income. However, you are still responsible for reporting your crypto or stock trading activity accurately and paying the right amount of taxes.
How to Slay Your Taxes as a Gen Z: Final Tips
As you can see, taxes can be complicated, but they don’t have to be scary. Here are some final tips on how to slay your taxes as a Gen Z:
- Start early: Don’t wait until the last minute to file your taxes. The deadline for 2023 is April 18, but you can file as soon as you have all your documents and information ready. This will give you more time to review your return, catch any errors, and avoid penalties and interest .
- Use a tax software or a professional: Filing your taxes by yourself can be daunting, especially if you have a complex situation. You can use a tax software or a professional to help you file your taxes correctly and easily. A tax software will guide you through the process, ask you questions, and fill out the forms for you. A professional will do the same, but also offer you advice and support. You can choose the option that suits your budget and needs .
- Claim your refund or pay your balance: If you overpaid your taxes, you will get a refund from the IRS. If you underpaid your taxes, you will owe a balance to the IRS. You can check the status of your refund or balance on the IRS website or app. You can also choose how you want to receive your refund or pay your balance, such as direct deposit, check, debit card, or electronic funds withdrawal .
I hope this blog post helped you understand some of the basics of Gen Z tax deductions and tax filing. Remember, this is not tax advice, but general information. For more specific guidance, you should consult a tax professional or the IRS website. And don’t forget to subscribe to my blog for more Gen Z finance tips and tricks. Happy tax season!
