5 Tax Tips for Recent College Graduates Starting Their Careers
After spending years studying hard for your degree, you’re likely excited about finally beginning your career and building wealth. But you should also think about planning for your taxes. In addition to taking advantage of tax benefits for your previous education expenses, you can make decisions at work to cut your tax bill. Here are five tax tips to know.
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1. Check for Education Tax Credits
These two popular credits could save you money on education costs you’ve paid:
American Opportunity Tax Credit: This credit is available for the first four years of eligible costs and can provide up to $2,500, including a $1,000 refundable portion. It requires being a degree-seeking student who at least attended half-time status for one term.
Lifetime Learning Credit: This is a nonrefundable credit that tops out at $2,000 and has more lenient requirements. For example, you can use it for graduate education and non-degree programs.
Note that income limits and several other rules apply to both education credits. The IRS provides details on this comparison tool.
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2. Deduct Student Loan Interest
You could qualify to deduct a maximum of $2,500 in interest you pay each year on private and government student loans on your federal return. This option is available if you’re not someone’s dependent or a married person filing separately from your spouse. You must not exceed certain income limits and need to have used the loan funds for qualified expenses.
3. Plan for Tax Withholding and Payments
To avoid surprise bills and penalties, you must pay enough taxes based on your earnings and tax situation. If you’re an employee, you should carefully complete IRS Form W-4 to provide details your employer uses to deduct income taxes from your paychecks. On the other hand, estimating and paying taxes each quarter will be your responsibility if you’re self-employed.
4. Get Started With Tax-Advantaged Retirement Accounts
Even right after graduation, thinking about your retirement savings is a wise idea. Not only will starting early leave plenty of time to grow your money, but you can also enjoy tax benefits.
For example, putting cash in a traditional 401(k) at work or a traditional IRA on your own lets you delay paying income taxes on that money until you withdraw it. Roth 401(k) and IRA accounts don’t provide this benefit now, but you could enjoy tax-free earnings on your investments later. You might also qualify for the Saver’s Credit worth up to half your contribution.
5. Deduct Costs If You’re Self-Employed
Like many recent graduates, you might have done flexible gig work for extra cash, or you might pick self-employment as a full-time career option. Either way, closely track your eligible business expenses since you can deduct them on your tax return and save on income taxes. Here are some sample deductible expenses you could have:
Vehicle mileage and maintenance
Home office space
Continuing education
Licensing and insurance costs
Business equipment
Advertising and marketing expenses
Professional services fees
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This article originally appeared on GOBankingRates.com: 5 Tax Tips for Recent College Graduates Starting Their Careers
