As a new college graduate, you no doubt feel proud and relieved, but at the same time, it’s only natural to feel overwhelmed and even confused. Often, this is because your finances are in disarray after you’ve dealt with loans and tuition. However, there are a few Tax Breaks available to new College Graduates of which you may not know that can help your situation.
Student Loan Interest Deduction
While you are struggling to pay back your student loans, it’s important to know that you can reduce your taxable income by as much as $2,500 each year for the interest you paid on federal and private loans. In fact, if you have a gross income of under $60,000 and are filing as single, you can get a full deduction. Over time, this becomes phased out when your income increases and ceases once you are making as much as $75,000 as a single tax filer.
Tuition and Fees Deduction
In many cases, when you are a college student, your education continues past an undergraduate degree. That means that you are still dealing with expenses for your post-graduate classes. As a result, tuition and fees can be deducted from your taxes, which allows you to decrease your taxable income by a maximum of $4,000. If you have a total gross income of under $80,000, you can qualify for a full deduction as well.
Lifetime Learning Credit
If you are paying for qualified expenses for your post-secondary education, you can earn a Lifetime Learning Credit of up to $2,000. This amount is a non-refundable reduction of your total tax bill and there are no limits on the number of years the credit can be claimed, which means you can claim it toward your expenses on undergraduate, graduate or professional degree classes. You can even claim it on courses that improve your career skills.
As a new graduate who is entering the workforce, you can claim your retirement contributions against your taxes as a credit of 50 percent depending on your income. All contributions toward your retirement, usually within a 401(k) plan, are pretaxable, which means taxes aren’t paid on them until funds are taken from the account. If your income is moderate, you can also receive a tax credit for retirement.
Moving Expenses Tax Deduction
Many college graduates seek to relocate after they are done with their education for new jobs and other reasons. As a result, moving expenses are tax deductible as well, including costs from packing shipping, traveling and lodging. However, to be eligible, you have to be working full-time for at least 39 weeks in the first year of your new job after getting to your destination. Your new place of employment also must be over 50 miles away from your old one or your former home.
Being a new graduate can be exciting but stressful at the same time. Knowing that there are tax breaks available to you can make your transition much easier.
William Doonan is a tax law and legal expert.