Millennials and Generation Z have lots to complain about. They have trouble with dating, their college costs have doubled, and they can’t afford to buy a home. On top of all that, they also need to worry about taxes (just like everybody else.) And in case you haven’t noticed, there’s a lot of fighting in Congress, and when there’s fighting, there’s tax reform. Those changes are now affecting the younger generations, so if you’re a Gen Z’er or Millennial, here are five tax changes you need to think about when filing your tax return in 2023.
#1 Your free money has gone Poof!
First things first: your free money is gone. That’s right, in 2021 and 2022 you got all the free aid. Free stimulus money, free child credit money and, for some of you, tax-free unemployment. But just like the Chinese Balloon, poof, it’s gone. What does this mean for you? Your refunds are going to be smaller this year, and you may even owe tax. For some of you, it won’t be as rosy as 2022. So when you file your taxes this year, be prepared.
#2 Digital assets: don’t get “Rekt”!
Crypto and NFTs – Millennials and Gen Z’ers were the pacesetters last year. All you heard was NFT this and crypto that. Digital assets were the rage, and the nomenclature was “good morning!”, “wen lambo” (because crypto people are so cool that they eliminated the “h” from “when”) and “we’re all going to make it” (until you didn’t make it). Even though Crypto has rebounded in the last month, many Millennials and Gen Z’ers got “rekt” from bad crypto trades & rug pulls (frauds/scams). Not to mention the death of FTX, Celsius and Block Fi didn’t help. Make sure you check with your accountant or CPA to see which crypto losses you can write-off. Don’t miss this opportunity to save money and pay less tax.
#3 State tax changes in 2023: choose your state wisely!
For every state in the union, there’s a war going on for your tax dollars. Thanks to the great COVID-19 migration, you live or have moved to: a high tax state, a low tax state, or a tax-free state. Depending on which state you live in now, you either scored or need some tax planning, because states have been changing tax policies.
If you moved to a tax-free state like Nevada, Texas, Tennesse, or Florida (even a colder one like Wyoming or New Hampshire), you scored! But you still need to be careful.
High tax states like California and New York are upset that their tax dollars are running away. So instead of lowering taxes to make people stay, they’ve doubled down and are increasing taxes. Not only that, but they are also looking at ways to keep your domicile (e.g., your permanent home) in their state so they can claw back your tax dollars—even if you move! So, get your domicile in order. Update your driver’s license (and other licenses) as soon as you move, register to vote, and update your online bills.
In contrast, many medium-to-low-tax states, like Arizona and Idaho, hate that tax-free states are getting all the love, so they’ve been lowering their tax rates. Some have even gotten rid of tax brackets and moved to a flat tax to compete for your domicile and therefore your tax dollars.
Your domicile matters
Another thing to keep in mind about domicile: don’t think that you can change your residency just by changing your mailing address. The CA FTB (California Franchise Tax Board) now has authorization to request your cell phone ping records if they believe you’re lying about your domicile. Big Brother is really, really big in California. That means they can tell if you’re living in California or not by cell phone activity.
If you’re curious what your state’s domicile laws are, I have a section in the state taxes pages of my website. Just click on your state, and search under the domicile section.
Now let’s move on to a couple of not-yet-implemented changes you should be aware of.
#4 The IRS wants to tax your TIPS more
If you’ve been following my blog, you know that I used to work for the IRS. While I worked there, I was introduced to something called the IRS TIP reporting program. This program was set up so the IRS could get tax dollars from TIPS. How it works: an employer would sign a contract with the IRS to report their employees’ TIPS. The contract freed them from any future IRS TIP audits. The IRS is now offering this program voluntarily, whether or not their employer is part of the program.
However, an important point is that this proposal will allow the IRS to see tips data that’s in the restaurant’s point-of-sale (POS) system, all in order to come up with the contract terms. That means the IRS will know exactly how much you’re getting in tips—and if you misreport that amount, they will know! So, if you work in the hospitality industry, and you’re not already on an IRS TIPS agreement, you need to keep a close eye on this proposal to see how it ends up.
#5 Venmo / Cash App Tax Rules Next Year
The IRS was going to start looking at your Venmo transactions this year, but they’ve decided to hold-off for one more year. So, starting in 2024 you will be getting 1099s for transactions on Venmo & Cashapp. The IRS pushed it back one year due to the great public outcry. Now they’re hoping that Congress changes the $600 threshold to something more reasonable, like $2,500 or $5,000. In my opinion, the threshold should be increased for all 1099s, not just for electronic ones. But “should” doesn’t mean “will.” Stay tuned.
Because of the economic disarray in this country, and the ballooning federal deficit, I see even more tax changes coming in the future—and not in a favorable direction. Millennials and Z’ers—be proactive so you can strategize and make the best decisions that save you the money. You must be aware of both that IRS and state tax changes. The government is always tweaking tax proposals, introduces new ones, and cancels others.
As the Ancient Greek philosopher Heraclitus said, “you cannot step into the same river twice.” He was likely thinking of the river of tax law.