The time after graduation can be a tough one, financially. Starting out on your own, searching for a job, trying to pay back money you may have borrowed for school can all be quite stressful when it comes to managing a budget. Thankfully, there are a few tax breaks that recent college graduates can claim in order to save.
Four Tax Breaks:
- Student Loan Interest Deduction: Borrowers who earn less than $60,000 a year can receive a full deduction of the interest paid on a student loan. Those in the $60 to $70,000 interest range are entitled to a partial deduction. A borrower earning $55,000 annually with loans that are greater than $2,500 can save $625 at tax time.
- Lifetime Learning Credit: Taxpayers can get a $2,000 a year credit for all qualifying expenses in their own, or their dependent’s post-secondary education. The credit isn’t refundable, but it does match expenses dollar for dollar. Expenses of $2,000 or less are reduced to zero through the Lifetime Learning Credit. Students who graduated in May can claim a part of their expenses on their tax return. The American Opportunity Tax Credit is also available for those students in the first four years of post-secondary education, offering $2,500 in credit.
- Moving Expense: Graduates who have moved to accept a position in a new city can deduct almost all of their expenses, including traveling and packing costs. This deduction doesn’t cover meals, maintenance or depreciation on a car though. In order to claim this deduction, an employee needs to work at the company for 39 weeks during the first year they moved. If the taxpayer is guaranteed to work the 39 weeks but haven’t met the timeframe yet, they are still entitled to the deduction. The new employment place must be more than 50 miles away from your previous job. Graduates fresh out of college should look to take advantage of this deduction if it applies.
- Additional Opportunities: Rent graduates are eligible for a variety of tax credits and breaks that are often overlooked by the young professional. For example, the 401(k) retirement plans that allow pre-tax contributions can lower your tax bill, or a Roth IRA which taxes contributions but not withdrawals, can help your tax bill. Saving is another option many graduates have to earn a tax credit. Those who earn less than $18,000 annually is eligible for a 50% tax credit of their savings up to $2,000.
All it takes is a little bit of research and you can find a variety of tax credits and deductions that can help you keep more of your money in your pocket. Every little bit helps, especially when you’re fresh out of college.