Graduating From College
Before you climb that first rung of the career ladder, there are some basic rules to understand about income taxes. Think of it as Taxes 101.So your college diploma is framed and hanging on the wall, and you're getting ready to file your first tax return as an independent person.
First question: Who gets to claim an exemption for you, and shelter $3,500 of income from tax on your 2008 return? You or your folks? The answer depends on the circumstances, not on the results of a family meeting.
Your parents get the exemption if you were under 24 at the end of 2008, were a full-time student in at least five months of the year, lived at home more than half the year (living at college while you finished up can count as living in your parents' home), and did not provide more than half of your own support. If you're older or did provide more than half of your own support, for example, then you claim your own exemption. This is an either/or deal. If your folks qualify to claim you as a dependent, they can't decide to forego the exemption and let you claim it. If you don't qualify, you cannot claim your own exemption.
As soon as you can claim your own exemption, you can also start deducting interest paid on your student loans. You can write off up to $2,500 a year in interest on those loans.
Even if your parents pay interest on a loan for which you are liable, you may qualify to deduct that interest. There’s one catch: You can’t use the simplest of all tax forms—the 1040EZ—if you claim this deduction. There’s no place on the form to claim it. You’ll need either the 1040A or the full-fledged 1040. Of course, if you’re using TurboTax, we’ll automatically pick the right form for you.
On the bright side, you can claim this deduction even if you claim the standard deduction rather than itemizing deductions. The right to claim this deduction phases out at higher income levels, starting at $55,000 for individuals and $115,000 for married couples filing jointly in 2008. The income phase-out level for individuals increases to $60,000 and $120,000 for married couples in 2009.
While it can be costly printing your resume and traveling to interviews for your first job, you can't deduct those expenses. However, the cost of searching for subsequent jobs in the same line of work can be deductible.
There's no prohibition against deducting the cost of moving to your first job. If you accept a job and have to move more than 50 miles from your current home for work reasons, you can deduct moving expenses that are not reimbursed by your new boss, including a mileage allowance for driving your own car (19 cents per mile if you moved between July 1 and December 31, 2008, reflecting higher gasoline prices during the second half of the year). The mileage allowance for 2009 may be different. You can claim the moving expense deduction whether or not you itemize deductions.
TurboTax has the tax information you need about student loan interest, job hunting expenses, moving costs and other expenses that can save you money when you file your tax return.
Updated for tax year 2008
