Tax season is critical for younger self-employed individuals to ensure financial stability and set the foundation for future wealth.
For young people striving to build financial stability, the world of W-2s, 1099s, deductions, and credits can feel like a whirlwind. Many are unsure of how to maximize their tax returns while setting themselves up for long-term wealth.
Tax refunds have become a financial lifeline for many Americans. A recent Credit Karma survey found that 37% of taxpayers, including 50% of millennials, depend on their refunds to make ends meet. Nearly half of those respondents who count on their refund said it’s because of the rising cost of living and necessities. Millennials face a significant financial strain, with 26% having maxed-out credit cards and 23% planning to use refunds to pay down high-interest debt.
“Refunds are often the largest windfall for Americans, and many rely on this annual infusion of cash to make ends meet, pay off debt, or kick off savings for the year ahead,” said Courtney Alev, consumer financial advocate and head of tax at Credit Karma. “Americans’ dependency on refunds may be heightened this year as many grapple with the increased cost of living, which has led many Americans to live paycheck to paycheck.”
According to a study by the Stanford Institute for Economic Policy and Research, African Americans are five times as likely to have their federal tax returns audited than taxpayers of any other race.
Common tax season issues
The Defender asked a few entrepreneurs and creatives about their tax concerns over the years. Here are some responses.
Jasmine Oliver, owner of Tea Please, a loose-leaf tea company, has been an entrepreneur for five years and full-time for three. She recalls a major mistake she made early on in her business.
“One of my biggest mistakes my very first year was waiting to do my taxes just once a year instead of quarterly,” Oliver said. “Doing it that way just kind of broke things up for me instead of having this big end-of-year tax bill, where it’s like, ‘Oh crap, where am I gonna get this money from?’ But breaking it down quarterly helped out a lot.”
Oliver also learned the importance of setting money aside for taxes and being mindful of overspending, particularly when it comes to paying herself a monthly salary. “Making sure I put money away for taxes and not overspending, especially on myself, is crucial,” she said.
Another challenge for Oliver was determining which expenses were actually tax-deductible.
“I save my receipts, only to find out some of them may not be deductible for my business,” she said. “There’s a fine line between personal and business expenses.”
To stay organized and prepared for tax season, Oliver relies on QuickBooks.
“It’s an app with a camera feature that lets me take pictures of receipts and categorize them immediately,” she explained. “That way, I don’t forget which expenses I need to track. It keeps me organized and ready for tax time.”
Tajay Byrd, Creative Director of High Hope Agency, has been an entrepreneur for over 15 years, running multiple businesses under different tax structures, including LLCs and sole proprietorships. While tax season can be overwhelming, he sees it as both a challenge and an opportunity.
“It’s scary in a little bit, but it’s also a blessing just being able to be in business,” Byrd said. “I try to get knowledge and information from people I trust in the tax space. He said that having an accountant is very important, and how you send invoices is pivotal when it’s time to do your taxes.
“Even if you miss a year or fall behind, you can still get caught up and get knowledgeable about what you need to file your taxes properly,” he added.
He relies on Wave Accounting, a platform that helps him streamline his invoicing and payment processes.
“Everything I do, no matter what, is a transaction. I send invoices through the app, and payments are made directly. I also have my bank account hooked up to it, making everything transparent when I give it to my CPA,” he said.
Byrd also warns fellow entrepreneurs about high-cost tax services.
“When I started my LLC, I used LegalZoom, which charged me $600, even though filing an LLC in Texas only costs $300. That extra fee goes to the company; they charge an additional $300 annually for a registered agent. You can actually do it yourself and save money,” he explained.
Jakayla Monay, a professional photographer, knows the importance of organization during tax season. As a creative entrepreneur, she ensures that she has extensive documentation to avoid surprises.
“Because of the fear of missing something, I make sure to keep as much documentation as possible,” Monay said. “I go through my invoices, emails and all purchases to stay prepared.”
One of the biggest lessons Monay has learned is tracking mileage and business expenses.
“Mileage is a big one, and I manually check addresses on my invoices to track my travel from home to the photography studio and back,” she explained. “I also now know that things like my phone bill, internet, and even some equipment purchases can be write-offs. I didn’t realize early on how much I could deduct.”
According to a study by the Stanford Institute for Economic Policy and Research, African Americans are five times as likely to have their federal tax returns audited than taxpayers of any other race.
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Paul Njoku, a certified public accountant, owner of PKN Accounting and Tax Services PLLC, and financial strategist, warns against common tax mistakes young professionals make.
“One of the biggest mistakes I see is people with multiple jobs failing to check the box on their W-4 indicating they have more than one job,” Njoku said. “This results in under-withholding, leading to a large tax bill at the end of the year.”
Njoku also advises against relying on unqualified tax preparers.
“Be careful about who is handling your sensitive financial information,” he cautioned. “Make sure they are licensed, use secure software and aren’t just entering numbers without considering your best interest.”
To avoid issues with the IRS, Njoku suggests keeping all tax-related receipts and documentation for at least three years.
“The IRS can randomly audit your return and request proof of deductions. If you don’t have proper records, they can readjust your tax return and impose penalties,” he said.
Another critical mistake taxpayers make is ignoring 1099 forms.
“If you receive a 1099 and don’t file a return, the IRS will file it for you—without considering your deductions or tax status,” Njoku said. “You could end up owing much more than necessary.”
To maximize tax savings, he recommends:
- Proper withholding adjustments – Ensure your W-4 reflects all income sources.
- Using free tax filing services – If your situation is simple, avoid unnecessary fees by using programs like Freedom Tax USA.
- Tracking expenses year-round – Maintain a separate business account for all expenses.
- Investing in tax-advantaged accounts: To lower your taxable income, Consider contributing to a traditional IRA or health savings account (HSA).
