If you’re currently a college student or have just started out in the workforce, you may think you’re not eligible for any tax breaks, especially if you’re single with no kids.
There are several tax breaks available for young adults and they can help reduce your overall tax liability at the end of the year. Sure, they’re not as generous as the tax deductions available to your friends with kids, but they can still reduce your overall tax liability.
Savers Credit: If you’re stashing money away into an IRA or employer-sponsored 401K, you’re in luck. You’ll receive a tax credit of up to $1,000. You’ll get a year-end statement from your employer’s 401K administrator or your IRA administrator verifying the amount you stashed away in savings.
The Saver’s Credit only applies if you’re earning $45,000 or less each year.
Lifetime Learning Credit: You may be eligible to deduct up to $2,000 in education-related expenses. This credit applies to any undergraduate, professional or graduate study at an accredited institution.
Taking courses for the sole purpose of strengthening your job skills? You can also deduct related expenses for these courses.
American Opportunity Tax Credit: If you’re in your first four years of post-secondary education, you’re also in luck. You can deduct up to $2500.00 of your education-related expenses each year while in school. Keep track of your receipts for textbooks, tuition, educational software and any other education-related expense.
Self-employment: Whether you’re driving for Uber or renting out rooms on AirBnB, side gigs are a great way to bring in some cash. Unfortunately, the IRS regards these activities as self-employment, so you’ll be subject to self-employment tax.
One way to reduce the sting of these extra taxes is to keep record of all of your business-related expenses. Keep all receipts for fuel, supplies, advertising materials and other business-related expenses.
If you earned more than $600.00, the employer (Uber, for example) will issue you a 1099 Misc. form at the end of the calendar year. In the event they don’t issue a 1099, you will still need to claim the income on your tax returns.
Job search expenses: If you are looking for work within your industry, you can deduct your travel, meal and lodging expenses if your job search took you 50 or more miles from your home.
The same goes for moving expenses. If you landed a new job at least 50 miles from your current address, you can deduct your moving/relocation expenses. This includes transporting your furniture, clothing, and other possessions. You can even deduct the cost of transporting your pets.
You can also deduct mileage expenses at the rate of .19 per mile.
If you’re in college or just starting out, you may think you’re not eligible for any tax breaks, but there are tax deductions that are available to you right now. Remember to keep track of any related documentation to support your deduction, such as mileage records and receipts for expenses.
As with any tax matter, if you’re not sure of the tax breaks available to you, check with a licensed tax preparation professional who can determine your eligibility and answer your questions. You’ll be glad you did when it comes time to file your tax return.