Because federal tax law reaches deep into all aspects of our lives, it's no surprise that the rules that affect us change as our lives change. This can present opportunities to save or create costly pitfalls to avoid. Being alert to the rolling changes that come at various life stages is the key to holding down your tax bill to the legal minimum.
If you've just gotten or are about to get your degree, take our short post-graduate course on tax breaks that can help you get a start in the working world.
Moving Expenses
Even if you don't itemize deductions, you can write off unreimbursed costs of moving for your first job, as long as the job location is at least 50 miles away from your old home (which could be your residence at college if you have a job offer when you graduate).
When totaling up the costs, count what you paid to pack and ship household belongings to the new location, including the cost of shipping a car or pets. If you drove your own car for a 2014 move, you can deduct
Part-Year Withholding
When you start a job, you'll be ushered into the human-resources office and asked to fill out a Form W-4, which your boss will use to decide how much state and federal income tax to withhold from your pay. Most workers don't do a very good job with this task, which is a major reason why three out of four taxpayers get tax refunds each year (proof that too much tax was withheld in the first place). For a first job, there's an even bigger danger: That the newly minted employee won't know about "part-year" withholding.
This special brand of withholding is tailor-made for new graduates who get their first full-time job around midyear. The part-year method sets withholding according to what you'll actually earn during the part of the year you work, rather than on 12 times your monthly salary. That can make a significant difference in how much your employer holds back from your checks. The part-year method can be used by anyone who expects to work no more than 245 days--approximately eight months--in continuous employment during the year. You must give your employer a written request that this special method be used. Employers don't have to comply, but if yours does, you'll get more of your pay as you earn it rather than having to wait for a refund the following spring.
The Tax- and Money-Saving Power of a 401(k)
New grads are often so strapped for cash that the last thing they want to do is divert part of their salary to a retirement plan. Don't make that mistake.
Sign up for the 401(k) as soon as you are eligible and contribute at least enough to capture 100% of any employer match. That's free money.
Money that goes into a traditional 401(k) account is pretax, meaning Uncle Sam doesn't get a crack at it before it goes into the tax shelter. That's why a
Don't Ignore the FSA
There's a good chance your new employer will offer a flexible spending account that you can fund with pretax dollars to pay medical expenses.
Far too many employees decline the opportunity because of what they consider a diabolical "use it or lose it" rule. You have to declare before the year begins how much you'll contribute to the account and, if you don't use it all by year-end, you forfeit what's left. (There are a couple of exceptions: Many employers let employees spend one year's FSA money through
Don't let the use-it-or-lose-it rule scare you away from the mighty tax savings an FSA offers. Contributions avoid both federal and state income taxes, and
The Power of the HSA
When it comes to health insurance, consider whether it makes sense to buy a high-deductible policy teamed with a health savings account. An HSA gives you a triple tax break: Your contributions are deductible (or made with pretax money if it's withheld from your paycheck), the money grows tax-deferred, and the funds can be withdrawn tax-free to pay your medical bills. It's like a supercharged flexible spending account that never expires. Most employers also add a few hundred dollars to the accounts each year as a bonus.
To use this tax shelter, you must have a qualifying insurance policy, which is, among other things, a policy that has a deductible of at least
Student-Loan Interest Paid by Mom and Dad
Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child's student loans, the
So as long as the child is no longer claimed as a dependent, he or she can deduct up to
Annual Gift-Tax Exclusion
If Mom and Dad (or generous grandparents, perhaps) are giving you a financial hand while you establish yourself after graduation, you need to know about the federal gift tax. Although rarely paid by anyone, when the federal gift tax is owed, it is owed by the giver of the gift, not the recipient. Each year, anyone can give any number of individuals up to
Larger gifts trigger the need for a return, but every taxpayer has a lifetime credit large enough to cover the tab on more than
Lifetime Learning Credit
Just because you have a degree doesn't mean you stop learning . . . or paying for higher education.
If you're paying for course work--maybe evening classes in computer coding or a foreign language, for example--Uncle Sam may help foot the bill via the Lifetime Learning Credit. It's worth 20% of up to
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Kevin McCormallyis Editorial Director of Kiplinger Washington Editors. .