If you’re a new grad or taking on your first “real” job, you could be dealing with information overload when it comes to taxes, deductions and eligible expenses. The good news is there are some expenses you can deduct from your return and you could end up taking less of a tax hit for the year. Read up on these top tax deductions for young adults:
Student Loan Deductions
If you’re making student loan payments, no one needs to tell you they take a bite out of your hard-earned paycheck. The good news is that you can claim your student loan interest on your taxes.
The maximum student loan interest deduction is $2500.00. Simply state the amount of interest deducted on the Student Loan Interest deduction field on your 1040 or 1040EZ, and proceed with the rest of your return.
At the end of the year, your student loan lender will issue a 1098E form, which will disclose your total student loan interest payments. While you won’t have to attach this form to your tax returns, you should tuck it away for future reference.
Another way to take the bite out of your student loans is through your tax refund; if you’re in school and have deferred your student loans, your interest is accruing daily. Take the sting out by paying down your interest with your tax refund.
You won’t need to apply all of your refund…just 10-20% of your refund can make a difference, depending on your student loan balance.
Lifetime Learning Credit and Tuition And Fees Deductions
You can reap the tax benefits of higher education even after you graduate. If you’re taking additional college courses to earn a second degree or to upgrade your skillset, hold onto any receipts related to tuition, fees, and books.
Be sure to claim these credits on your tax return; these credits, along with your student loan deduction, can potentially lower your taxable income and therefore the taxes you may owe on your return.
Home Office Deduction
If your job involves working from home full-time or part-time, you may be eligible for the home office tax deduction. You’ll need to use a dedicated space in your place for work-related activities only in order to be eligible for this deduction. You’ll be able to deduct up to $1500.00 for this tax year. The same holds true if you have a side hustle and work from a home office.
Side Gig Deductions
If you’ve picked up a side hustle, chances are some of your expenses will be deductible. These can include:
- Tolls, parking, and gas
- Travel (related to your side hustle only)
- Home office use
- Digital subscriptions, such as Office 365, Dropbox, and other apps you use exclusively for your side hustle
- Meals (coffee with a client, for example)
If you’re not sure which expenses are deductible, check with a tax pro. They can provide expert advice and can help you avoid overpaying your taxes.
Volunteering is a great way to connect with your local community and to serve others. In some cases, you’ll need to purchase a uniform or other clothing article for your volunteer gig. In other instances, you’ll need to pay your own way to the volunteer site. Other deductible volunteer-related expenses iclude:
- Public transit fares, gas, air travel
- Housing/lodging expenses for non-local volunteer work
Generally, you can deduct any item that is required for you to perform your volunteer duties. Be careful when deducting travel; you’ll need to prove the expense was incurred for day-to-day volunteering.
For example, if you travel out of state to volunteer for disaster clean-up, you’ll need to prove your travel expenses were necessary for each day you volunteered. If you spend four days visiting friends and family in the area, and then volunteer on your last day, you won’t be able to deduct your travel as volunteer expenses.
One of the unfortunate aspects of “adulting” is paying taxes. By taking advantage of available deductions, you can lessen the sting of that annual tax bill. Student loans interest, side gig expenses and volunteer expenses are potentially deductible and could save you some serious cash at the end of the year.