On a similar note...
On a similar note...
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Graduating from college brings huge life changes — many of which have big effects at tax time. Here are a few ways new college graduates can lower their tax bills — or even snag a refund — come filing time.
1. Take interest in interest
Up to $2,500 of the interest portion of student loan payments can be tax-deductible if your modified adjusted gross income, or MAGI, is below $80,000 for singles ($165,000 for married couples filing jointly).
You can still qualify for the tax break if the loan’s 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. 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 ($18,500 in 2018) — 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 another $3,450 per year if you’re single and $6,900 if you have family coverage. And putting money into a flexible spending account could keep another $2,650 out of your taxable income in 2018.
Be sure not to procrastinate, Hopkin says — you might be able to sign up for your company 401(k) at any time, but enrollment for HSAs and FSAs usually happens just once a year.
Most major tax software companies offer free packages to people with simple tax situations.”
3. Don’t sideline that side gig
New grads planning to freelance or be 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.
“In your workplace, chances are you're having the taxes withheld. But for any sort of side gig, you're responsible for those taxes,” she says.
4. 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 MAGI is below $66,000 as a single filer or below $132,000 as a married person filing jointly, you could claim a tax credit of up to $2,000 per year for post-secondary work at eligible educational institutions. You don’t need to be in a degree program — a single class can suffice.
5. 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.
If you’re single and have an adjusted gross income, or AGI, of less than $31,500 (or $63,000 if married and filing jointly) in 2018, 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.
6. Be a tax deal-seeker
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.
The IRS’s Free File program provides free tax software to people who make less than a specific AGI (currently $66,000).
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.