×

The biggest tax mistakes millennials make

With the deadline right around the corner, doing your taxes can be daunting, particularly for millennials, but if you avoid making these rookie mistakes, the whole process will be a lot smoother.

For starters, don't overlook taking all the deductions you are entitled to.

Like many millennials, you may be cash strapped and trying to pay off student debt. Nineteen percent of Americans don't know what student-loan tax benefits they can claim, according to student debt-management website Student Loan Hero.

If your income falls within certain limits, you can deduct up to $2,500 of the amount of interest you paid on your loan for 2015. "At the end of the day you can save about $600 ... and have a little extra money in your pocket," said Andrew Josuweit, CEO of Student Loan Hero.

Here's a look at some other deductions and penalties, you might not be aware of:

As a millennial, you've probably moved around a time or two. If you've relocated for work and your employer didn't cover the moving costs, you may be able to write off some of those expenses, including traveling to the new location or transporting your furniture. The rule generally applies if you work full time and your new workplace is at least 50 miles away your old home. Deducting that move could lower your taxable income by thousands of dollars.

Or if you work from home, you could claim a home office deduction. Just be sure the office is an actual office and not a spare bedroom. To simplify the calculations, you can claim up to 300 square feet, at $5 a square foot, with no itemization or documentation necessary.

Are you a freelancer with multiple sources of income? Documenting your business expenses and determining what you can deduct can be complicated. Here's where professional help might be in order, Josuweit said. One mistake to avoid is being overly ambitious in thinking you can do it all yourself.

Archive Photos | Getty Images

Another common mistake millennials make is not properly adjusting their federal and state withholding allowance. If you find yourself owing the IRS money, change your W-4 to withhold more taxes over the course of the year, rather than having to come up with the money all at once, said Howard Pressman of Egan, Berger & Weiner, a financial services firm in Vienna, Virginia.

On the flip side, you don't want to withhold too much because you'd be better off getting more in your paycheck throughout the year to contribute to a retirement account or pay down debt. Getting a large refund is a sign to adjust your withholding as well.

As for retirement contributions, tax time is a great opportunity to put money into a 401(k), traditional or Roth IRA. Those funds will grow tax free or tax deferred for the future.

"If you don't have student loans you definitely want to start funding your retirement," said Sean Keating, a certified financial planner at Patriot Financial Advisors in Eatontown, New Jersey.

If you had health-care coverage through 2015, don't forget to check the box. For the first time, not having health insurance will trigger a tax penalty.

Last but not least, don't avoid filing a return altogether. You'll get hit with a failure-to-file penalty, plus interest, if you miss the deadlines. If necessary, request an extension to file in October, just make sure you stay on top of it.