Seven tax suggestions for new college graduates
Save money or score a refund from student loan payments, job search costs, work benefits and side gigs.
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.
1. Take interest in interest
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 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 is 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.
2. Get a move on
You can’t deduct jobsearch 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.
3. Let your boss help
“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 an additional $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 an additional $2,600 out of your taxable income.
4. Consider side gigs
New grads who freelance or are 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.
5. Keep learning
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 modified adjusted gross income 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 postsecondary work at eligible educational institutions. You don’t need to be in a degree program — a single class can suffice.
6. Save yourself
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 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.
7. Look for deals on tax help
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.
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.