Graduating from college leads to important life changes that can trigger significant tax benefits. The United States National Center for Education Statistics estimated that 3.4 million college degrees were awarded in the 2011-12 school year. Many of these recent college graduates took on new and exciting responsibilities in the real world, like starting their first job this past tax year. And many of these graduates may not be aware of the tax benefits available to them.
Mark Steber, Chief Tax Officer, recommends new graduates check out these tax tips:
Deduct student loan interest
Taxpayers can claim up to $2,500 in student loan interest paid during the year as long as they are legally obligated to repay the loan, were at least a half-time student in a degree or certificate program when the loan was awarded and attended an eligible institution.
Know how being claimed as a dependent by someone else can impact their taxes
Many college students are claimed as a dependent on their parent’s or guardian’s tax returns. This affects eligibility for certain deductions and credits, like student loan interest paid. Taxpayers should verify their dependent status before filing their taxes.
Be aware that scholarships, fellowships and apprenticeships can affect their taxes
Scholarships and fellowships are taxable if they are not paid directly to the institution or were awarded to a non-degree candidate. Any part of the scholarship that is used for room, board or travel is also taxable. Generally, any payments from apprenticeships are taxed the same way as wages.
It is easy to owe taxes when taxpayers start their first ‘real job’ because they are accustomed to having a small amount of withholding. Any time income increases, it is important to make sure to have enough withholding to cover the new tax liability. The IRS Withholding Calculator helps taxpayers determine the best way to determine withholdings.
Claim moving expenses from relocating for a new job
Taxpayers must work full-time for 39 out of the next 52 weeks to be eligible. Keep track of mileage, lodging expenses and tolls when relocating, as well as the cost of moving any household goods and pets. All these relocation expenses can be tax deductible.