The 7 Best Tax Planning Strategies for Gen Z To Start Now

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Everyone’s favorite time of year rolls around every April: Tax Day. For anyone who works in the U.S., filing taxes each year is required and there’s no way around it. That includes Gen Zer workers too, a population that’s growing each year.

According to Adobe Stock’s Cultural Insights report, Gen Z workers are expected to outnumber Baby boomers in 2024 and they’re projected to make up 30% of the workforce by 2030. In addition, about 57% of Gen Zers plan to or expect to change jobs within the year.

With more Gen Zers in the workforce at various different jobs, proper tax planning becomes necessary. You might be wondering why tax planning is so important. Well, a lack of careful tax planning can mean you end up paying more taxes than you need to, you pay too little taxes, or you end up making a mistake and getting hit with IRS penalties.

Fortunately, there are lots of tips and strategies to make sure you’re on the right track when it comes to your taxes.

Here are seven of the best tax planning strategies to start now, according to Intuit TurboTax and CNET:

1. Take Advantage of 401(k) Contributions

Electing for 401(k) contributions is a smart way to reduce your tax liability. The greater the percentage of your gross income that you allocate toward your 401(k) in a tax year results in less taxes owed to the IRS now, since you’ll be deferring tax liability until later in life. Even small and consistent contributions starting from an early age can leverage compound interest, allowing your savings to grow exponentially over time.

2. Adjust Your Tax Withholdings

Figuring out the proper tax withholdings can mean more take-home pay throughout the year instead of waiting for a tax refund when you file. Withholding too much can mean you’re giving Uncle Sam an interest-free loan all year while withholding too little can mean you’ll be on the hook for a big tax bill in April. You can use the IRS’s Tax Withholding Estimator to determine the correct withholdings based on your income.

3. Deduct Your Student Loan Interest

If you’re paying off your student loans, you can deduct up to $2,500 per year in student loan interest payments. This will directly reduce your taxable income, which should result in more money back in your pocket. If you’re paying federal student loans, you can see how much student loan interest you’ve paid in a given year on tax form 1098-E, which should be accessible in your student loan account.

4. Educate Yourself

As they say, knowledge is power. Stay informed about tax law changes and other related developments that may impact your finances. If you’re in the know, you’ll be more likely to avoid filing errors and ensure you’re employing the best tax planning strategy possible.

5. Keep Detailed Records of Your Expenses if You’re Self-Employed

If you work for yourself, it’s crucial to maintain records of all your annual earnings and expenses. You can deduct many of the expenses related to your work, including those related to space in your home where you do your work. When you’re self-employed, you’re responsible for paying your tax bill to the IRS. So don’t forget to make required quarterly tax payments throughout the year to avoid penalties when you file your tax return.

6. Take Advantage of Tax Credits

If you’re working while you’re in school, you can save money with the American Opportunity Tax Credit (AOTC). The AOTC offers a maximum $2,500 tax credit for your education expenses for the first four years of college as an undergraduate student, either by your parents or you (that is if you’re not claimed as a dependent by your parents). There’s also the Lifetime Learning Credit (LLC) which offers a maximum $2,000 tax credit. Unlike the AOTC, you’re eligible to claim the LLC if you’re an undergrad, in grad school, or enrolled in an eligible professional learning course like a coding boot camp or a professional development class.

7. Don’t Forget To File Your Taxes

If you meet the income requirement of an adjusted gross income (AGI) of $79K or less (as of 2023), you can take advantage of the IRS Free File program. Rather than pay for a tax preparation service to file your tax return on your behalf, you can save a bundle by doing it yourself.