The Essential Tax Tips For New College Graduates

You may also have started working, buying a car, starting saving for retirement, or even moving out of your family’s home in addition to earning your degree. Another significant milestone is approaching: paying your taxes as a college graduate. Everyone might benefit from some tax tips, but it could be especially useful for fresh graduates.

Working through high school and college likely means, you’ve previously submitted tax returns. However, now that you have a job and a steady income, you may qualify for some tax credits and deductions. Your parents or accountant will need more information than your W-2 to complete your taxes.

It’s time to get your tax paperwork in order so you can claim as few deductions and credits as possible while still paying as little in taxes as possible. When filing your taxes as a recent college graduate, consider these suggestions:

Tax Tips 1: Getting your tax paperwork in order

Even if you want to submit your tax returns electronically, you will still need a substantial amount of paper documentation. Please put all your tax paperwork in one location and label it accordingly. A large envelope or folder will do the trick.

You may require, among other things, the following to file your taxes:

• A copy of your employer’s W-2 form.
• If you are self-employed, whether full- or part-time, you will receive Form 1099.
• Donation acknowledgments are receipts.
• You should receive Form 1098-E if you paid interest on your student loans.
• Earned interest on a bank account or investment should be reported on Form 1099-INT.

Tax Tips 2: When filing your taxes, student loans can be helpful.

Have you picked up on the fact that we referenced 1098 earlier? Why? Because racking up debt after four years of higher education is all too familiar. You may find it inconvenient to pay it back, but your student loan can help you save money when filing your taxes. The interest you have paid on your student loan may be eligible for a tax deduction.

Interest paid on student loans throughout the tax year is tax deductible up to $2,500 if you meet one of the following conditions set forth by the IRS:

• If you’re single, your modified adjusted gross income doesn’t exceed $85,000, and if you’re married, it doesn’t exceed $170,000.
• Interest accrued on federally insured student loans must be repaid.
• If you’re married but filing separately, you won’t be able to do so.
• As a result, no one is relying on you financially for tax purposes.

To take advantage of this tax deduction, you’ll need to fill out Form 1040. As an adjustment to income on Form 1040, the student loan interest deduction can be claimed even if you do not use Schedule A to itemize your deductions.

Tax Tips 3: The purpose of pursuing further study could be credit-worthy

The fast-paced environment of the commercial environment may require you to begin continuing your education quickly after starting your first job.

Suppose your modified adjusted gross income is $65,000 or less ($130,000 or less for a married couple filing jointly). In that case, you may be eligible to get a $2,000 tax credit for college expenses paid on behalf of yourself, your spouse, and a qualifying dependent.

Tax Tips 4: Try to minimize your taxable income.

You may be able to pay less in taxes or get a larger refund if your taxable income is lowered. Three of the most prevalent — and helpful, especially for recent grads and young professionals entering the workforce — strategies for reducing your taxable income are:

• Retirement accounts include a 401(k) or an IRA (IRA).
• Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs) (FSAs).
• Contributions to non-profit organizations.

Retirement accounts

You recently received your bachelor’s degree and are now more concerned with starting your professional life than saving for old age. But retirement savings do more than build a nest egg; they also help you save money on taxes right now.

401(k) contributions are not included in taxable income since they are considered pre-tax. Additional earnings from your 401(k) investments are also not subject to taxation until the day they are withdrawn. When you retire, your tax rate will be determined by your retirement tax bracket, which is expected to be lower than your current tax rate.

Contributions to an Individual Retirement Account (IRA) can function similarly. However, whether or not they are tax deductible depends on your income level, the type of IRA you choose (traditional or Roth), and other criteria.

Keep in mind that there are annual contribution caps imposed by the Internal Revenue Service for many retirement accounts. Learning the restrictions in advance is wise, so you don’t contribute more than authorized.

Health Savings Accounts (HSA) & Flexible Spending Arrangements (FSA)

Two tax-advantaged strategies for handling healthcare expenses are health savings accounts (HSAs) and flexible spending accounts (FSAs).

High-deductible health plans (HDHPs) are linked to health savings accounts (HSAs). These policies make monthly payments modest, but annual deductibles are large. Additionally, you will have more significant out-of-pocket expenses, making your healthcare costs more remarkable than those with alternative health plans.

Up to certain limits, HSAs can assist with these out-of-pocket expenses. Contributions to and distributions from an HSA for qualified medical expenses are exempt from federal income tax.

You should know that not all healthcare-related expenses are eligible to be paid for with HSA money. Contact your plan’s administrator to determine what medical costs can be paid out of your HSA if you have a high-deductible health plan.

If you have funds remaining in your HSA at the end of the year, they will remain there. It belongs to you and can increase tax-free forever.

While FSAs and HSAs have similarities, there are important distinctions. You can set aside money tax-free in a health savings account through a flexible spending account (FSA), but unused funds will be forfeited at year’s end. If you have a Flexible Spending Account (FSA), you should use those funds before they expire. If you have any questions about the kind of expenses that can be paid for with your FSA, it is recommended that you contact your plan administrator.

Contributions to Non-profit Organizations

Giving to charity is a win-win situation in which you lower your taxable income and help others.

To deduct donations, the charity must meet specific criteria. Qualified organizations can be found by searching the IRS website’s Exempt Organizations Select Check. Be aware, though, that not every qualified group is included here. Your charitable contributions should be itemized on lines 16–19 of Schedule A of Form 1040 if you wish to claim a tax deduction for them.

You must have documentation of the contribution. A canceled check, credit card receipt, or receipt from the tax-exempt group accepting your goods for donation will suffice. Ensure the receipt has the correct date and a complete list of the items you gave.

Tax Tips 5: It would be best if you weren’t afraid to file your taxes.

When you graduate and begin working, filing your taxes may not be as easy as in school. Still, the increased complexity is no excuse to shell out more for professional tax preparation services. You can likely still complete your taxes, even if you have student loan interest, moving expenditures, retirement funds, HSA payments, and charitable donations to manage.

Conclusion

It’s not uncommon for a person’s tax filing strategy to shift once they receive their bachelor’s degree. By filing your taxes with the knowledge and assurance from reading these tax advice for college graduates, you can increase your chances of minimizing your tax liability and getting the most significant refund possible.

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Source: Creditkarma