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Graduating from college brings huge life changes — many of which have big effects at tax time. Here are a few ways you can save a little money — or even snag a refund — come filing time.
Student loan payments are a fact of life for many new graduates. But up to $2,500 of the interest portion of those payments can be tax-deductible if your modified adjusted gross income, or MAGI, is below $80,000 for singles ($160,000 for married couples filing jointly). And you can still qualify for the tax break if the loan’s in your name but your parents make the payments — though if you want the deduction, they can’t claim an exemption for you on their tax return.
You can’t deduct job-search expenses if you’re looking for full-time work for the first time or in a new career field, but moving to a new city for that first job can come with major tax breaks.
The cost of movers, utility hookups, storage, and even hotel stays during your drive to the new city can all be deductible. Be sure to check the rules, though — they’re detailed. Your first 9-to-5 must be at least 50 miles from your old home, for example, and only expenses racked up within a year of your start date count. Moving expenses your employer pays might not count, either.
“One of the biggest and most frustrating things that we see is people not taking advantage of their benefits offered through their workplace,” says Alex Hopkin, an associate planner at Gen Y Planning, a financial planning firm for millennials.
Contributing to a company 401(k) can shelter up to $18,000 per year from income taxes — and you’ll get a jump start on retirement saving, plus free money if your company offers a match. If you’re enrolled in a high-deductible health plan, contributions to a health savings account could shelter another $3,400 per year if you’re single and $6,750 if you have family coverage. And putting money into a flexible spending account could keep another $2,600 out of your taxable income. Be sure not to procrastinate, Hopkin says — you might be able to sign up for your company 401(k) at any time, but enrollment for HSAs and FSAs usually happens just once a year.
New grads planning to freelance or be their own bosses can claim huge deductions for business expenses. That means keeping careful records and filing a Schedule C. And be sure to set aside about 25% of what you earn for the IRS, Hopkin advises.
“In your workplace, chances are you’re having the taxes withheld. But for any sort of side gig, you’re responsible for those taxes,” she says.
A degree can take you a long way, but many people need extra certifications or classroom training to move up in their career field. That’s when the Lifetime Learning Credit can come into play.
If your MAGI is below $65,000 as a single filer or below $131,000 as a married person filing jointly, you could claim a tax credit of up to $2,000 per year for post-secondary work at eligible educational institutions. You don’t need to be in a degree program — a single class can suffice.
Start stashing cash for retirement now, and that money could balloon over time. Saving can also cut your tax bill. For example, you might be able to deduct up to $5,500 of contributions to a traditional IRA each year.
And if you’re single and have an adjusted gross income, or AGI, of less than $31,000 (or $62,000 if married and filing jointly), you might qualify for the Saver’s Credit. That can slash your tax bill by up to 50% of the first $2,000 (for single filers) or $4,000 (married filing jointly) you contribute to an eligible retirement plan.
Chances are your tax situation is as uncomplicated as it’ll ever be, so don’t overpay for tax software or help. Most major tax software companies offer free packages to people with simple tax situations, and the IRS’s Free File program provides free tax software to people who make less than a specific AGI (currently $64,000). If you need human help, the Volunteer Income Tax Assistance program or other programs could hook you up with a pro at little or no cost.
Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org.