Ed note: Getting that first “real” job has a lot of exciting perks and maybe one that isn’t so exciting. If you’ve been claimed on your parents return in the past and not made enough to file, this could be your first year filing a full return on your own. Here are a few perks you should know about.
Congrats grad! You did it – finished school, hopefully found a great job, and are now living your dream. But now that you’re in the real world, it’s time to think about taxes. Yes, taxes. Once a year (at least), you’re going to have to go through all of your finances and file your tax return. It’s not a hard process, and there are a lot of tools to help, but you still have to do it.
If you’re a recent grad, who went into the workforce instead of graduate school, here are some important considerations to think about when preparing your taxes for the first time.
Credits and Deductions For Your Education Costs
Since you’ve graduated, this is the last year you’ll be able to claim any education costs on your tax return. If your parents aren’t claiming you as a dependent, you may be eligible to receive a credit or deduction for any education costs incurred.
Typically, your school will send you a 1098-T, which will show how much you spent on your education last year. Depending on your income, you could receive the American Opportunity Tax Credit, the Lifetime Learning Credit, or the Tuition and Fees Deduction.
Student Loan Debt
In 2013, 69% of all college graduates left school with student loan debt. The average balance was $28,400 per borrower. However, you may be able to deduct any interest you pay on these loans.
Generally, you may deduct $2,500 or the amount of interest you actually paid, whichever is less. So if you paid $1,500 in interest that is what you’ll deduct. If you paid $4,000 in interest, you will only deduct $2,500. This deduction can help lower your taxes.
Health Insurance
As a recent grad, you also need to make sure you have a qualifying health insurance plan. In college, you may have been able to stay on your parents’ plan (or until you turn 26 years old).
However, if you’re no longer on your parents’ plan, you need to have a qualifying health insurance plan or you could face a penalty, which could be hundreds of dollars depending on your income.
If you don’t think you can afford health insurance, see what plans you may be able to afford and if you qualify for a subsidy at healthcare.gov.
Start Saving For Your Future (and Saving on Taxes)
Finally, once you get a job, you should start saving for retirement and saving on taxes at the same time. Many employers offer 401k or 403b plans to their employees, which not only help you save for retirement, but also help you save on taxes each year since the contributions are made pre-tax and reduce your taxable income.
If your employer doesn’t offer one of these plans, there are other options, such as an IRA. The bottom line is that you should not only be saving for the future, but you should also look at taking advantage of tax-deferred accounts to allow your money to grow tax-free.
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