The subtle nuances of tax law have been nothing but confusing to the majority of taxpayers for years. It can be difficult to make sure you have applied for all the deductions and credits available while filing your taxes. The most definitive way to insure you have received all your possible deductions is to sit down with a tax professional and discuss all the options available for your tax bracket and marital status.
Not everyone can afford to have a consultation with a tax company or CPA, and some finance departments of local colleges will help first year alumni work on taxes for little to no cost. Those who do not have access to these outlets are left to their own devices. Paper forms can be printed from the IRS website for practice and for filing purposes, but over the past decade software packages like Turbo Tax have become widely popular. Regardless of how you choose to file your taxes, there are some crucial deductions that you can easily miss if you file them yourself.
For recent graduates, it is important to file a tax return every year even if you are not working full time. People who have difficulty finding full time jobs right after graduating often work a small part time job to make ends meet. They usually fall under the income requirements for filing taxes and choose not to do so, but any withheld funds are eligible for a refund. It is also important to start assessing your tax return early; whether you work at a part time job or are on salary, your pay stubs will keep a running tally of your income and withholdings for the year. These will be broken down by state and federal withholdings to help you complete the necessary federal and state tax forms.
There are a surprising number of deductions and credits that are overlooked by many people filing their own taxes each year. The most important loan deduction for new graduates is for student loan interest. You will be allowed to deduct all the interest you have paid towards your loan up to $2,500, and this will apply to all interest bearing loans for individuals and couples filing joint returns. If your parents have helped you pay the student loan debt thus far, you are still eligible for this deduction because the government will view the money as being gifted to you to pay the debt yourself.
There are two additional deductions that will particularly important for new graduates, job hunting costs and moving costs for new jobs. Job hunting costs that can be written off must be itemized and include food, lodging, cab fare, printed materials, and any employment agency fees you may incur, but unfortunately do not apply the first job directly out of college. The moving expenses include tolls, parking, a mileage deduction for driving costs and the cost of moving household items, but will only apply if you are required to move at least fifty miles from your current residence.
There are also a few deductions that apply to everyone who is filing taxes this year, but are easily overlooked by people who have not had a lot of exposure to tax law. The government allows you to choose between deducting state sales and state income tax, and if you buy a vehicle or home building materials the additional sales tax deduction may be more beneficial than the income tax option. Child care costs can also qualify you for a tax credit of up to 35% of what you pay out, and will vary based on tax bracket you fall under. You should be careful to check and see if you employer offers an expense plan for child care because this may afford you a better option than a tax credit at the end of the year. Charitable donations, and expense related to charity work can also be deducted for tax purposes, but any expenses over the $250 mark will require a letter from the organization to prove you actually spent the money.
These are just a few of the hundreds of deductions that may be available for you when filing your taxes. It is important to research all the laws that will apply to your particular situation and income level. If you choose to self-file, you should start early, and check for new laws often to make sure you have gotten the most money back you can possibly get. Good luck, and happy tax paying!
Angie Picardo is a staff writer for NerdWallet. Her mission is to help student stay financially savvy and save money with Nerdwallet’s best rewards credit cards.
© 2013, Angie Picardo. All rights reserved.