Tax Tips for Recent Graduates

Many recent graduates are entering the working world for the first time and need tax filing tips. The IRS has developed several credits to help save you money on taxes as you enter the work world and start paying back those loans.

Lifetime Learning

The lifetime learning credit is an annual credit for any adult student who takes at least one college level course through an accredited university, college, or institute of higher learning. The course can be a graduate or undergraduate course, and the credit is for a maximum of 20% of the first $10,000 spent on tuition and other educational expenses in the tax year, up to a maximum of $2,000. There are income restrictions; if you make more than $48,000, you may not be eligible for the full credit, although if you file a joint return, the income limit is doubled.

Hope Tax Credit

Changes to the tax code now allow the Hope Tax Credit to be taken for four years of education instead of two. However, you can only take either the Lifetime Learning Credit or the Hope Tax Credit, not both in the same year. The same income requirements apply; the maximum credit under this program is $1800.

Tuition and Education Expenses Deductions

If you are not eligible for the Hope or Lifetime Learning credit, you can deduct the cost of tuition and education expenses, reducing the amount of income you have to pay tax on, up to $4,000 each year. Even if you take standard deductions and do not itemize your expenses, you can take this deduction. Living expenses, including room and board, are not eligible under this deduction program.

Student Loan Interest

If you are making student loan payments, you can deduct up to $2,500 in interest each year even if you don't itemize your deductions. Income limits apply; you must make less that $70,000 or $140,000 for a married couple.

Tax Free Loan Forgiveness or Cancellation

If you choose to work in a specified profession, or for a special specified employer, some or all of your student loan debt may be forgiven. Certain professions in health care and education have loan forgiveness programs. The programs are typically for professionals to work in areas of great socio-economic need. Attorneys and doctors are also eligible if they choose to work in the public defender offices or locate their practices to specific areas.

To learn more about the potential tax savings available to new graduates, visit the IRS website or discuss your specific situation with a tax adviser or accountant.