As tax season rolls around again, an alarming number of young people are feeling the pressure. A recent survey from CNET revealed that over half (51%) of Gen Z respondents are grappling with fear surrounding their tax filings. Even millennials, who many might consider the more seasoned generation, are not immune, with nearly half (48%) reporting similar anxieties. This spike in tax season stress can largely be attributed to the unfamiliar complexities of filing as many young adults enter the workforce for the first time.
Jassen Bowman, an enrolled agent and tax expert, offered some insight into this growing anxiety, stating, "It's normal for people to have at least a little bit of anxiety around something new. Many Gen Zers are just now starting to enter the workforce, and they're either not used to filing taxes at all, or perhaps their parents did it for them until now." So, what can these younger generations do to alleviate their fears and navigate tax season with more confidence?
One of the first steps is to take advantage of the plethora of free resources available online. The IRS provides various programs, including Low Income Tax Clinics and the Volunteer Income Tax Assistance program, both designed to help taxpayers meet their filing obligations. Bowman highlights, "There are definitely some resources available out there for getting free tax help." The IRS also offers a Free File program, which allows individuals earning $79,000 or less to file their taxes at no cost, an option many Gen Z filers are unaware of.
This year, a troubling 39% of Gen Z filers stated they were unsure if they qualify to file for free, the highest among all generations surveyed. The likelihood of discovering free filing options is crucial, as many companies like TurboTax and H&R Block offer free services for simple returns. Additionally, Cash App Taxes offers a no-cost alternative, although it might not be as user-friendly.
If a taxpayer is feeling overwhelmed by the thought of last-minute filing, it might be time to file early. Bowman elaborated, "Filing early is always a good idea. This gets you your refund as soon as possible." Not only does this alleviate some stress, but it also reduces the chances of getting caught in a tricky situation if unexpected issues arise, like a government shutdown that could delay refunds.
For those venturing into freelancing or side hustles, keeping track of side income is crucial this tax season. The IRS recently rolled out changes to Form 1099-K for freelancers paid through payment apps like Venmo and Cash App. These changes note that any freelancers who earn money outside traditional employment must track their income diligently, as the IRS imposes a 15.3% self-employment tax to ensure contributions to Social Security and Medicare.
Staying organized is paramount, especially for self-employed individuals. Bowman recommends using bookkeeping apps to manage receipts and income throughout the year. He states, "Keep good records. Use a bookkeeping app to take pictures of every business receipt as soon as it's in your hand." This proactive management helps taxpayers avoid surprise tax liabilities.
Students, in particular, may find tax benefits lurking within their educational expenses. The American Opportunity Credit can cover up to $2,500 for eligible expenses, while the Lifetime Learning Credit maxes out at $2,000. While students most often qualify for either credit, they can only select one, requiring careful consideration of which option offers the greater financial benefit.
Ahead of the tax deadline on April 15th, it’s crucial to remember that this deadline presents no exceptions, even with tax extensions. Taxpayers who require more time can apply for Form 4868, granting an additional six months to file but not to pay any taxes owed. Missing the filing deadline without an extension incurs serious penalties. If you fail to file, the IRS imposes a late-filing penalty of up to 25% on unpaid taxes.
Additionally, taxpayers should be attentive to potential forms of income reporting. In the past few years, the threshold for reporting on payment apps has decreased significantly, causing more individuals to receive Form 1099-K. This form signals a report of payments received for goods or services. However, users of payment platforms like Zelle are exempt as it does not hold balances and only facilitates transactions directly.
Millions of Americans who use Venmo or PayPal for personal transactions must be wary; personal payments are not taxable, and if mistakenly reported, they should contact the issuer to obtain a corrected Form 1099-K.
What if you owe more than you can pay by the April deadline? Recommendations from tax preparer Marilee Daugherity suggest paying what you can and considering other options. The IRS accept credit card payments, which may help avoid penalties if managed carefully. Moreover, eligible taxpayers can explore the IRS's Offer in Compromise program, allowing for a settlement based on what they can afford.
As the tax deadline fast approaches, it’s clear the complexities of filing can be overwhelming. However, by utilizing available resources, being organized, and planning ahead, young taxpayers can navigate tax season with greater confidence and peace of mind. After all, while taxes may evoke anxiety, being prepared can turn dread into a manageable task.
