5 Tax Breaks for Recent College GradsNovember 12, 2014
For recent graduates buried in student loan debt, there are several ways to save and take advantage of unique tax breaks.
Finances after four years of college can be tough on recent graduates; luckily there are several tax breaks and refunds specifically for grads that can be of great use when money is tight. Education tax credits and deductions can produce a large tax refund.
Five ways to save
- Student loan interest deduction – As graduates work to pay off loans, they can reduce their taxable income by as much as $2,500 per year for interest paid on both federal and private student loans. Those who have adjusted gross income of less than $60,000 and are single filers are eligible for a full deduction. The deduction is gradually phased out as income levels rise, with the deduction being completely phased out when income reaches $75,000 for single filers.
- Tuition and Fees Deduction – For many graduates, education does not stop at an undergraduate degree. As an increasing number of students are paying qualified expenses for post-graduate courses, the tuition and fees deduction allows them to reduce their taxable income by up to $4,000. Those with adjusted gross income of less than $80,000 will qualify for a full deduction. The income limits for this deduction are higher than other deductions and credits, making this a much more appealing option for recent graduates. This deduction technically expired as of December 31, 2013, however this and many other items are still on the table for Congress to discuss and possibly extend via the upcoming sessions. If the extension of this deduction is passed, it will most likely be retroactive to January 1, 2014.
- Lifetime Learning Credit - For those who are paying qualified expenses for post-secondary education, the lifetime learning credit is worth up to $2,000. This credit is a “nonrefundable” dollar-for-dollar reduction of your tax bill. There is no limit to the number of years this credit can be claimed. This credit can be claimed for undergraduate, graduate and professional degree courses – including courses to acquire or improve job skills.
- Retirement Contributions – For new grads entering the workforce, one of the first questions that they will be asked is whether or not they want to participate in the retirement plan of the company they are working for (most often a 401(k) plan). Contributions to such retirement plans are pretax, meaning that taxes are not paid until funds are withdrawn from the account. There is also a tax credit for retirement savings for low and moderate income workers, a category that many recent graduates may fall into. Voluntary contributions of up to $2,000 are eligible for up to a 50% credit depending on income levels.
- Moving expenses tax deduction – This could apply to many recent grads looking to relocate after graduation for new job prospects, opportunities, etc. According to the IRS, reasonable moving costs are covered by the deduction, including packing, shipping, travel and lodging associated with the move. Meals are the only non-deductible expense. To be eligible for the deduction, you must work full time for a minimum of 39 weeks during the first year (12 months, not a calendar year) after arriving in the area of the new job. The employee’s new workplace must be more than 50 miles farther from his home than his old job was, or if this was his first job, it must be more than 50 miles away from his old home.
Life after graduation can bring many new anxieties – moving out of Mom and Dad’s place, looking for employment, paying off student loans, the list goes on. Availing yourself of these beneficial tax breaks can make post-grad life significantly easier. Contact us for help with your tax credit deductions.