Congratulations, class of 2014! Here are 6 tax and financial tips to keep you headed in the right direction as you move into this next phase of life.
Live Like You’re Still in College – One of the first things I try to tell all new graduates: once you land that first big job, don’t immediately increase your standard of living.
If you can pretend like you’re still in college for a couple more years (have roommates, spend frugally, avoid big financial moves like buying a house) you will do yourself a great service financially.
Resist the urge to buy a new car, wardrobe, furniture set, and instead spend that money on paying down your loans, getting rid of any credit card debt, and kick-starting your savings accounts.
With your new income you’ll make huge strides towards graduating to a happier financial life.
Take Charge of Your Situation – As soon as you go out on your own and start earning a full-time income, start taking responsibility for your obligations.
This means doing things like adjusting your W-4 and understanding your withholding, making estimated tax payments if you’re self-employed or working as a contractor, and keeping accurate records of deductible expenses.
Deduct Job Hunting and Moving Expenses If You Can – Speaking of deductions, two of the more common deductible expenses for people in transition are the job hunting expenses and moving expenses.
Unfortunately, as a college grad, you may not be able to deduct your job hunting expenses unless you’re searching for a job within your already established field of work.
However, you should be able to deduct the expenses related to moving for the sake of a job if your move is more than 50 miles from your old home. Keep records of expenses related to the move including mileage, moving truck rental, lodging, and more.
Keep Your Receipts for College Expenses– Don’t forget to take advantage of the education tax benefits available today.
You may have had some qualifying education expenses earlier this year, or you may still be incurring expense due to graduate work.
Be sure to keep your receipts for your education spending like tuition and fees, books, supplies and equipment so you can take advantage of education tax credits and deductions available at tax time.
Don’t Forget Student Loan Interest Deduction – Once you graduate you’ll probably be required to start making regular payments on your student loans.
Interest on the loans will make up a big chunk of those payments. Now for the good news. You can deduct that expense when filing your taxes.
A maximum of $2,500 can be deducted. Don’t worry, you won’t have to do the math, your lender will send you a Form 1098-E to let you know what your total interest deduction is. Income and other limitations apply.
Open Tax Advantaged Savings Accounts – One of the best things you can do for yourself financially to really have a long-term impact is to open and start contributing to tax advantaged retirement savings accounts (i.e. 401K, Roth IRA).
The obvious, and likely best place to start is with your company’s 401K, which is a tax-deferred account. Be sure to at least get the company match that typically comes along with such accounts.
If you want to save on your own as well, consider a Roth IRA. It’s a great alternative to the 401K, and since you contribute using after-tax dollars, earnings in and withdrawals from a Roth IRA, if done according to the guidelines, are not taxed.
These accounts serve the dual purpose of helping you get prepared for your financial future and helping you save money on your taxes, both now and in the future.