It’s June again, and that means thousands of students will be graduating college and entering the job market. Now that the stress of school and finals is over, these graduates will now have to take on the stress of real life finances, and taxes. However, with the right information and guidance tax planning can be surprisingly easy. To help any of my readers who have either recently graduated themselves, or know someone who will be soon, I have put together the following list of tax tips for college graduates.
Job Related Relocation
Everyone knows that the job market is not as good as it once was, and this can be frightening for a new graduate entering the workforce. Fortunately, there is a helpful tax deduction that can be very helpful if you are required to relocate to a job 50 miles or more away. However, the rules are somewhat complicated and you might want to speak with a tax professional to make sure your expenses qualify. For example, gasoline and hotel expenses can be claimed, while food cannot.
Avoid Credit Predators
Although this is not technically tax advice, it is a good idea to beware of creditors that prey on recent college graduates. Credit card companies aggressively target college students with on campus promoters, and will continue to do so after graduation. If you avoid opening too many accounts, then you will have extra money to make sure you can pay your full tax liabilities.
Student Loan Interest
If you took out any student loans to help you pay for college then you can now take advantage of the student loan interest deduction. It allows you to subtract the interest paid on your loans, which can be quite a chunk of change for many recent graduates. However this deduction does begin to phase out once your income reaches a yearly total of $65,000. For more information, check out page 28 of this IRS publication.
Standard Deduction vs. Itemizing
Most college graduates will want to take the deduction of $5,450. If you are a married graduate, you can take the joint deduction of $10,900, and a heads of household can claim $8,000. Taking the standard deduction will make preparing your return considerably easier, but you should also consider the benefits of iteming your return. If you think your total number of deductions and credits will exceed your standard deduction, then you might want to itemize for maximum savings. This may seem difficult, but most tax professionals – and even tax preparation programs – can easily tell you if taking the standard deduction would benefit you or not.
Charitable Donations
While any taxpayer can claim this credit, the charitable contributions deduction can be especially useful to many college graduates. If you donated a lot of your old books, or had to downsize to relocate for a new job, then be sure to keep track of all the items you donate. You can deduct the value of all items you donate, as long as you itemize your return and have proof of your donation.
Self-Employment
This year more than ever, college graduates – especially those majoring in a technology related field – are considering self-employment. Luckily for them, there are dozens of tax credits and deductions out there for self-employed individuals. For more information, check out 10 Tax Tips for Self-Employed Individuals on the Roni Deutch Tax Center Tax Help Blog.