You have a newly minted diploma and high hopes for landing your first job. But 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.
See Also: Tax Planning for Life's Major Events
Filing Your Tax Return
So 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 $3,950 of 2014 income from the IRS? 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 2014, 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, then you claim your own exemption. This is an either/or deal. If your parents qualify to claim you as a dependent, you cannot claim your own exemption.
Student Loan Interest
As soon as you can claim your own exemption (the value usually goes up by $50 each year to keep up with inflation), you also can 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 can deduct that interest. But you can't use the 1040EZ form. To claim the student loan interest deduction, you'll have to use the longer 1040A or even-longer 1040 form.
There's a separate line for student-loan interest, and you can claim it even if you don’t itemize deductions. The right to claim this write-off phases out at higher income levels, starting out at $65,000 for individuals and $130,000 for married couples filing jointly in 2014.
While it can be costly printing your résumé and traveling to interviews for your first job, you can't deduct those expenses. But don’t assume that ban is forever: The cost of searching for subsequent jobs can be deducted . . . as long as you’re looking for a new position in the same line of work rather than trying to change careers. Note that this write off is considered a miscellaneous expense, so you get a tax benefit only if you itemize deductions and only to the extent that all your miscellaneous expenses exceed 2% of your adjusted gross income.
Unlike job-hunting expenses, you can deduct the cost of moving to take your first job. And, you don’t have to itemize to use this tax-saver. The key is that you must move more than 50 miles from your current home. Meet that test and you can deduct moving expenses that are not reimbursed by your new boss, including a mileage allowance for driving your own car. For moves in 2014, you can deduct 23.5 cents a mile.