Taxes 101: Graduating from College
Saturday, February 16, 2008; 12:00 AM
You've got 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.
Filing your taxes. 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 $3,400 of income from 2007 taxes ($3,500 in 2008)? 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 2007, 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, for example, 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, 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 may qualify to deduct that interest. But you can't use the 1040EZ form. To claim the student loan interest deduction, you'll have to use the regular 1040 form. There's a separate line for student-loan interest, and you can claim it regardless of whether you itemize your other deductions. The right to claim this deduction phases out at higher income levels, starting out at $55,000 for individuals and $110,000 for married couples filing jointly in 2007. The income phase-out for married couples will increase to $115,000 in 2008 but the limits for individuals will remain at 2007 levels.
Job hunting. While it can be costly printing your rï¿½sumï¿½ and traveling to interviews for your first job, you can't deduct those expenses. The cost of searching for subsequent jobs in the same line of work can be deductible.
Moving expenses. There's no prohibition against deducting the cost of moving to your first job. If you accept a job and have to move more than 50 miles from your current home for work reasons, you can deduct moving expenses that are not reimbursed by your new boss, including a mileage allowance for driving your own car (20 cents a mile in 2007, and probably slightly more for 2008 moves). You can claim the moving expense deduction regardless of whether you itemize deductions.
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