Early in my career, I audited the financials of an energy trader. The line the CEO always repeated was, "no such thing as a bad trade - you just run out of time." In other words, if you don't get the timing right, nothing matters. 🕰️

I see this all the time in taxes. A young taxpayer reads a few subreddit forums on taxes, follows some influencers and before he knows it has 5 trusts, 1 S-Corp, and 10+ Wyoming LLCs to maintain. They may all be good ideas, but most of the time it's way too early for that much complexity.

Today is all about what to do early in your career 👶 - how do you remain flexible enough while still tax-smart in this phase of life?

Let's dive in.

1. Get That Free Money (401k Match)

This one's non-negotiable. If your employer offers a 401k match, you contribute enough to get every penny of it. Full stop.

This is additional compensation that you're otherwise leaving on the table - and it's tax deferred. While being in a low tax bracket phase of life doesn't scream "defer income," this is different because it's basically more wages you're getting.

For an example: let's say you make $50,000 and contribute 6% ($3,000). Your employer kicks in another $1,500. That's $1,500 you literally cannot get any other way. Plus, your $3,000 contribution reduces your taxable income, saving you another $300-$500 depending on your tax bracket.

Don't leave the money on the table. 🍽️

2. Max Out Your Roth IRA (Your Future Self Will Thank You)

Here's where being young and "broke" is actually an advantage. You're probably in one of the lowest tax brackets you'll ever be in. This makes Roth contributions a good idea.

With a Roth IRA, you pay taxes now on money you contribute, but everything – contributions and decades of growth – comes out tax-free in retirement. When you're 25 and making $45,000, you're paying maybe 10% in taxes. When you're 65 and hopefully making more, you could be paying 20% or higher.

There's a reason the IRS limits how much Roth you can contribute per year - it's a very powerful strategy. 🏋️‍♂️

The 2025 contribution limit is $7,000. If you can swing it, max it out. Can't do the full amount? Start with whatever you can – even $100/month adds up. Set up automatic transfers and forget about it.

3. The Bunching Strategy for Itemized Deductions

Most people take the standard deduction ($15,750 for single filers in 2025) because their itemized deductions don't add up to more. But here's a clever workaround: bunching.

Instead of spreading deductible expenses evenly across years, bunch them into alternating years. Make two years' worth of charitable contributions 👛 in one year. Time out property tax payments 🏡 to be January 1 and December 1 if you own a home or condo. Schedule medical procedures 🚑 in the same year.

In your "bunching" year, you itemize because your deductions exceed the standard amount. In your "off" year, you take the standard deduction. Over two years, you get more total deductions than if you'd just taken the standard deduction both years.

This takes some planning ahead, but the tax savings can be substantial – especially as your income and expenses grow.

4. Car Loan Interest Deduction (Thanks to Recent Tax Changes)

Here's some good news fresh from recent tax legislation: car loan interest is now deductible under specific circumstances up to $10,000. If you've got a car loan, that interest might be working in your favor come tax time. 🚗

This is valuable for new cars that are final assembled in the US. And with a low income phaseout (phaseout starts at $100,000 for single filers), this is designed for low-income taxpayers.

That $500-800 monthly payment suddenly stings a little less when you realize the interest portion is potentially saving you money at tax time. And you don't have to itemize to see the benefit.

Keep detailed records of your payments and interest – your lender should also provide annual statements breaking this down if your vehicle purchase qualifies.

5. Overtime Compensation Deduction (Another Recent Win)

Speaking of recent changes, there's now a deduction available for certain overtime compensation - up to $12,500 for single filers. If you're putting in extra hours – and let's face it, early career often means proving yourself through hustle – this could mean significant savings.

Same as with the car loan interest deduction, you don't need to itemize to get the value from this new deduction - but you need to be mindful of your compensation structure. 🔍

The people that will benefit from this are those who are labeled as "non-exempt" and are eligible for overtime pay. When they are paid time and a half (for example), the "half" is the amount of the overtime deduction. Note there is a higher income phase-out from car loan interest, so young and low earners should be able to take good advantage of this.

6. Living Trust: Estate Planning for the "I Don't Have Anything Yet" Crowd

"Estate planning? I'm 24 and own a Honda Civic and some student debt." I hear you. But if something happens to you tomorrow, do you want the government deciding what happens to your stuff and who makes medical decisions for you?

A basic living trust isn't just for rich people with mansions. It's a simple document that puts YOU in control, even when you can't speak for yourself. Here's what it does:

First, it names someone you trust to manage your finances if you become incapacitated. Without this, your family might need to go to court just to pay your bills or access your accounts. That's expensive, time-consuming, and stressful during an already difficult time.

Second, it ensures your assets (yes, even your modest 401k and that savings account you're building) go exactly where you want them to go, without the delays and costs of probate court. 🤕 Your beneficiaries get your money faster and with less hassle.

Third, it includes healthcare directives. Who makes medical decisions if you can't? What are your wishes about life support? These conversations are uncomfortable, but having clarity protects both you and your loved ones. 😷

As your career progresses and your assets grow, you can easily update the trust. Think of it as a foundation you're building now that will serve you for decades.

The Bottom Line

These strategies aren't just about saving money this year – they're about building wealth and protecting yourself over your entire career without sacrificing flexibility and tax efficiency. The decisions you make in your twenties compound over decades.

Start with the 401k match (seriously, do this tomorrow). Then tackle the Roth IRA. Once those are handled, consider setting up that basic living trust – it's one of those "hope you never need it, glad you have it" moves. As you get comfortable with these basics, layer in the more advanced strategies like bunching and the newer deductions.

Remember: the tax code rewards people who pay attention and plan ahead. Don't let complexity scare you off from strategies that could save you thousands. Your future self will thank you.

🫡

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