Did you graduate from college in 2014? Congratulations! It probably feels great to be done with school, but there's one more quick course you should take this spring. Welcome, students, to "Taxes for Recent Graduates 101."
As a recent graduate, you may be able to claim your own personal exemption on this year's tax return, but only if you are not claimed as a dependent by your parents. Parents may still be able to claim students who graduated in 2014 if:
- The student was under 24 by December 31.
- The student paid for less than half of his/her support during the year.
You cannot take your own personal exemption and be claimed as a dependent by your parents, so talk to your parents about how this situation will be handled before proceeding. It is an important first step because other aspects of tax filing hinge on whether you are being claimed as a dependent.
Whether to File
If your 2014 income was low, you are not necessarily required to file a return. Just how low your income must be depends on whether you are claimed as a dependent on anyone else's return. If you are taking your own personal exemption, you need to file if you made $10,150 or above in 2014. For those who are claimed as a dependent, the threshold goes down to $1,000 for unearned income or $6,200 for earned income.
However, even if your income was low enough that you are not required to file, you may still elect to do so. Filing allows you to request a refund of earnings that were withheld from your paycheck and gives you the opportunity to claim various credits for which you might qualify.
Student Loan Interest Deduction
If you are not claimed as a dependent on anyone else's return, you may be able to deduct the amount you paid in interest on a qualified student loan, up to $2,500. Publication 970 from the IRS can help you determine whether your loan qualifies for an interest deduction.
This deduction is phased out for single filers whose modified adjusted gross income is $60,000 or above and disappears when modified adjusted gross income reaches $75,000. These limits are higher for married couples filing jointly, but married couples filing separately can't take this deduction at all.
The student loan interest deduction is treated as an adjustment to income. This means that you can claim it without having to itemize deductions.
If you pay more than $600 in student loan interest to one entity over the course of the year, the lender will provide you with Form 1098-E, which denotes the amount of interest paid.
Student loan interest might not be the only tax break that you can take advantage of as a new graduate.
- The Lifetime Learning Credit is a $2,000 credit that helps pay for qualified education expenses. Income thresholds apply.
- The American Opportunity Tax Credit provides help with educational costs, up to $2,500 per year. Income limits apply to this credit also, and it can be used only for the first four years of post-secondary education. This is a partially refundable credit. The same student cannot take both the Lifetime Learning Credit and the American Opportunity Credit in the same year.
- Qualified tuition and fees can sometimes be deducted. You cannot do so, however, if you are claiming the Lifetime Learning Credit or the American Opportunity Tax Credit.
- Job search expenses for a new position in your current field are deductible. If your only job search in 2014 was for your first job in your field, you won't be able to take advantage of this deduction, but if you held more than one job in the field during the year, you may be able to.
- Moving expenses that were not reimbursed by your company can be deductible.
Meghan Ross is a freelance writer covering all things home and living. Her work can be found on Examiner.com.
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