David Barral, CPA, is a tax and accounting manager in New York City, and an adjunct professor at Wagner College in Staten Island. In the September issue of Journal of Accountancy, he offers a number of recommendations on how tax professionals can offer effective tax planning to millennials. Here are some of his top recommendations, recast as advice for the millennials themselves.
(1) Finance a first-time home purchase. Do not draw upon retirement funds, such as 401k plan accounts or IRAs, withdrawals from which are included in income and generally subject to income tax.
(2) Consider claiming educational expenses as a business tax deduction. Expenses must be for education-related expenses that maintain or improve skills in one’s trade or business, or that meet the express requirements of the employer.
(3) Take advantage of benefit cafeteria plans at work. Younger employees may avoid income tax and FICA on contributions to these plans. Flexible benefits may include health care or dependent care expenses and transit pass benefits, which could result in hundreds of dollars of tax savings.
(4) Evaluate student loan refinancing options to maximize interest savings and tax benefits. Compared to a few years ago, individuals have a wide array of options available to consolidate or refinance their student loans. As with any major asset or liability, it makes sense to be on the lookout for options to reduce the burden of student loans. Consider applying for the Public Student Loan Foregiveness (PSLF) program, if eligible.
(5) Start a ROTH IRA. Even a contribution of $100 makes sense, as ROTH IRAs have a five year minimum term requirement that starts at the time of the first contribution. Although many millennials do not have much ability to contribute to their retirement, starting the clock on a ROTH is a no-brainer.
If you would like to receive other tax and investment ideas that are applicable to your specific circumstances, contact Daren Dearden at North Capital. Daren, who is a millennial himself, works with a number of young professionals and other fellow millennials who are getting started on their savings and investment journeys.[/vc_column_text][/vc_column][/vc_row]