If you’re a member of the Class of 2015, chances are you have a lot on your mind: Finding work, moving to a new city, or moving back home to save on expenses while you get on your feet. If you’re one of the lucky ones who has landed a full-time job right out of school, your tax scenario is going to change. Here are some tips to make your first tax season a stress-free tax season:
1. Your Student Loan Interest is Deductible
If you’re already making student loan payments, there is some relief in sight at the end of the year: you can deduct your student loan interest. The IRS allows you to deduct the lesser of $2500.00 or the actual amount you paid in interest. For example, if you paid $500.00 in student loan interest, you can deduct that from your taxable income. Your student loan servicer(s) will issue a 1098-E form at the end of the year that will state the amount of interest you have paid.
Be sure to notify your student loan servicer of any address changes so your statement will arrive in time.
The IRS has established guidelines for claiming this deduction:
- You paid interest on a qualifying student loan during the 2015 tax year
- You were legally obligated to pay interest on the qualifying student loan (meaning that you were the person primarily responsible for paying off the debt – if you were paying off your friend’s loan, or your child’s loan, you may not qualify for the deduction).
- You are not filing taxes as married, filing separately (any other filing status is eligible)
- Your modified adjusted gross income is less than $70,000 (if you’re single) or less than $145,000 (if you’re married and filing a joint return)
- You are not being claimed as a dependent on anyone else’s tax return
While the student loan interest deduction may not completely take the sting out of your student loan payments, it can help in decreasing your overall taxable income, which in turn will mean you’ll be owing less in taxes.
2. Claim Your Own Exemption
Chances are if you’re younger than 24, have been a full-time student with your parents paying your expenses, you haven’t had to worry about claiming your own exemption each year.
However, if your financial situation improves after graduation and you’re able to pay your own bills and living expenses, you can claim the standard deduction of $4000.00 on your tax return, reducing your overall taxable income by $4000.00 right off the top.
3. Fill Out Your W4
If you landed a job after graduation, you’ll need to fill out a W4. While it may be tempting to claim more than one deduction, you could end up owing even more money at tax filing time. Instead, claim only yourself, just as you would on your tax return. This will prevent you from getting stuck with a larger than average tax bill at the end of the year.
Graduating from college and landing a job in this tough economy is an accomplishment to be proud of. Get your financial future off to a solid start by understanding your student loan interest deduction, personal exemption, and how to fill out your W4 form properly. Doing so will make your first tax season painless and you won’t get stuck with yet another bill that’s tough to pay: a sizable tax bill.