WSJ Your Money Briefing - The Tax Talk Every Young Adult Needs

Episode Date: April 1, 2025

Filing taxes for the first time? Wall Street Journal reporter Laura Saunders shares tax lessons that can help new earners save money, steer clear of penalties, and build good habits just in time for tax season. Dalvin Brown hosts. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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["Wall Street Journal"] Here's your money briefing for Tuesday, April 1st. I'm Dalvin Brown for the Wall Street Journal. ["Wall Street Journal"] Filing taxes can be daunting, especially your first time. WSJ reporter Laura Saunders has covered taxes for more than a decade, and now she's sharing the advice she gives her own kids. The tax code reflects modern economic reality. It's very complicated too.

It's full of all this forbidding language that Congress put into the system and all these ideas like who's your dependent or am I filing jointly or separately. It's a lot to master. But with a few smart moves, you can boost your refund, dodge penalties, and avoid first-timer pitfalls. We'll talk more with Laura after the world. Thank you. Thank you. Thank you.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. Thank you. WSJ reporter Laura Saunders joins me to share advice that could help new filers make smarter money moves. Laura, what made you want to write about tax tips for young people? A couple of things. One is that I'm discussing these issues with my children right now, so they were at the top of my brain. Another thing is that I write a lot of tax tips generally. I summarize tough issues and tell people the most important things.

And I thought, well, I could do that with taxes for young people because there's a massive detail. I've got three or four things that if you don't know anything else, you should know these. Got it. Tax preparation and filing can feel so daunting, though. Why is that? The tax code reflects modern economic reality.

It's very complicated, too. It's full of all this forbidding language that Congress put into the system and all these ideas like who's your dependent or am I filing jointly or separately and it's a lot to master. Yeah and your first tip is to not miss the tax deadline. Yes. Why does missing a tax deadline matter so much especially for young filers? It matters for young filers because they may be used to flexible deadlines. If you need to send a thank you note or if you have a term paper or something like that, you can maybe do it later.

It is not that way with taxes. The deadline is a hard and fast deadline. This year it's April 15th. And the minute you don't file or don't pay, the interest starts to mount up and there can be other penalties and the penalties are really stiff. They're heaviest in the first weeks after you file. You also say, don't let the tax tail wag the dog. Can you explain what that means?

Well, that's a very famous Horry-ull saying, but like a lot of Horry-ull sayings, there's a lot of truth in it. It doesn't mean don't worry about taxes because you should think about taxes, but it means don't let yourself get so wound up in the details that you miss more important things in life. I said in the story, I'm sure that Bill Gates and Steve Jobs were not thinking about taxes when they were pursuing their dreams of coming up with a personal computer. So don't get too focused on tax details. Although I also said, if you have an obsessive streak, it's a great way to use that energy productively.

Let's talk about investment taxes. In your story, which is linked in our show notes, you wrote about pandemic-era traders getting caught off guard. What kinds of tax surprises tend to hit young investors? For all investors, taxes are a really major element of rate of return. And rate of return is how you know if you have a good or a great or a bad or a miserable investment. Taxes can eat away your rate of return. And if you have any energy for learning about taxes,

see how they affect your investments and your retirement saving. Like should I have a traditional IRA or a Roth IRA? And should I change that if I already have one? Should I get the other later on? It's really important to know about taxes and investments. Now, what happened in the pandemic is that all these traders were keeping a running total of wins and losses in their head,

but they forgot that some gains are taxed at much higher rates than other gains. And losses make a difference too. In some cases, they can offset your gains and you pay lower taxes. In other cases, if you trade too frequently, they could be suspended and then you don't get to use them for a long time, so you pay a lot higher taxes. How do you build good tax habits early? Well, pay on time. And the other thing is to take a look at your return every year and try to see what you can learn from it. Now, I know people don't always want to do it.

It sometimes tells you things you don't want to know, but look at it. Try to think, oh, this is my income before taxes, and this is my income after taxes. What made the taxes go up or what made them go down? For instance, if you put money into a traditional IRA or a traditional 401k, that's taxable income coming off the top and that can bring your taxes down. On the other hand, if you put money in a Roth IRA, that won't reduce your taxes, but you might be better on the other end when you're taking money out.

I'm also wondering what tax advice you wish you had when you first started filing. I think the most important tax advice for many people is investment advice. Look at the taxes on your investments. Is this investment in a taxable account? In that case, taxes play a big role. Is it in a tax-favored retirement account? Then it doesn't matter, the taxes, so much. For a young adult who's filing their taxes for the first time right now, what's important to know?

The first thing to do is to look and see what free options are available. The government has something called direct file. It's not in all states, but it's in many states. And you should look and see if you have low enough income to qualify. That's a really good idea. There are low income tax clinics at various universities. And then you might look at the tax software and see if anybody has free options, but make sure it's a really free

option that they're not going to add on bells and whistles that upsell you into owing money at the end. That's WSJ reporter Laura Saunders. And that's it for your money briefing. This episode was produced by Ariana Asparu with supervising producer Melanie Roy. I'm Dalvin Brown for The Wall Street Journal. Thanks for listening.