Graduating from college is a huge milestone. You’ve spent years studying, pulling all-nighters, and surviving on instant noodles, and now you’re finally stepping into the real world. But along with the excitement of landing your first job or starting your career, there’s something else you need to think about: taxes. Yeah, I know, taxes aren’t exactly the most thrilling topic, but understanding them early on can save you a lot of stress—and money—down the road.
If you’re like most recent grads, taxes probably weren’t covered in your college curriculum. And unless you’ve had a part-time job or internship that required you to file, the whole process might feel overwhelming. But don’t worry, I’ve got your back. Here’s a breakdown of what you need to know about taxes as a recent college graduate in the USA.
1. Understand Your Filing Status
First things first, you need to figure out your filing status. This is basically how the IRS categorizes you based on your situation. For most recent grads, the two most common statuses are Single or Head of Household.
- Single: If you’re not married and don’t have any dependents, you’ll likely file as single. This is the most straightforward status.
- Head of Household: If you’re supporting a child or another dependent (like a younger sibling), you might qualify for this status, which comes with some tax benefits.
Your filing status affects your tax rates and the deductions you can claim, so it’s important to get it right. If you’re unsure, the IRS website has a tool to help you determine your status.
2. Know Your Income Sources
As a recent grad, your income might come from multiple sources. Maybe you’ve landed a full-time job, or you’re freelancing, or you’re still working part-time while figuring things out. Whatever the case, you need to keep track of all your income because it’s all taxable.
- W-2 Income: If you’re working a traditional job, your employer will give you a W-2 form at the end of the year. This shows how much you earned and how much tax was withheld.
- 1099 Income: If you’re freelancing, doing gig work, or have a side hustle, you’ll likely receive a 1099 form. This income isn’t subject to withholding, so you’ll need to set aside money for taxes yourself.
- Scholarships and Grants: If you received scholarships or grants, the taxability depends on how the money was used. Amounts used for tuition and books are usually tax-free, but funds used for room and board are taxable.
3. Don’t Forget About Student Loan Interest
If you’ve taken out student loans, there’s a silver lining when it comes to taxes. You can deduct up to $2,500 of the interest you paid on your student loans, which can lower your taxable income.
To claim this deduction, you’ll need Form 1098-E from your loan servicer. Keep in mind that there are income limits for this deduction, so if you’re earning a higher salary, you might not qualify.
4. Take Advantage of Tax Credits
Tax credits are like golden tickets—they reduce your tax bill dollar for dollar, which is way better than a deduction that just reduces your taxable income. Here are a couple of credits you should know about:
- American Opportunity Tax Credit (AOTC): If you’re still paying for education expenses (like tuition, books, or supplies), you might qualify for the AOTC. It’s worth up to $2,500 per year for the first four years of college.
- Lifetime Learning Credit (LLC): This credit is for ongoing education, including graduate school or professional courses. It’s worth up to $2,000 per year and doesn’t have a limit on the number of years you can claim it.
Both credits have income limits, so check the IRS guidelines to see if you qualify.
5. Keep Track of Your Moving Expenses
If you moved for a new job, you might be able to deduct some of your moving expenses. To qualify, your new job must be at least 50 miles farther from your old home than your previous job was. Unfortunately, the Tax Cuts and Jobs Act of 2017 eliminated this deduction for most people, but it’s still available for active-duty military members.
Even if you can’t deduct moving expenses, it’s a good idea to keep records of your costs. You never know when tax laws might change.
6. Start Saving for Retirement
I know retirement probably feels like a lifetime away, but starting to save now can make a huge difference thanks to compound interest. Plus, contributing to a retirement account like a 401(k) or IRA can lower your taxable income.
- 401(k): If your employer offers a 401(k) plan, take advantage of it, especially if they match your contributions. That’s free money!
- IRA: If you don’t have access to a 401(k), consider opening an IRA. Contributions to a traditional IRA are tax-deductible, while Roth IRA contributions are made with after-tax dollars but grow tax-free.
Even if you can only afford to contribute a small amount, it’s better than nothing.
7. Stay Organized
One of the best things you can do for your taxes is to stay organized throughout the year. Keep track of your income, expenses, and any tax-related documents. Here are a few tips:
- Use a Filing System: Whether it’s a physical folder or a digital one, have a designated place for all your tax documents.
- Track Your Expenses: If you’re self-employed or have a side hustle, keep receipts and records of your business expenses. These can be deducted from your taxable income.
- Use Apps: There are plenty of apps that can help you track your income and expenses, making tax time a lot easier.
8. Consider Hiring a Professional
If your tax situation is complicated—maybe you have multiple income sources, student loans, and moving expenses—it might be worth hiring a tax professional. They can help you navigate the complexities and ensure you’re taking advantage of all the deductions and credits available to you.
That said, if your taxes are relatively straightforward, you can probably handle them yourself using tax software like TurboTax or H&R Block. These programs walk you through the process step by step and can save you a lot of time.
9. Don’t Procrastinate
Taxes are due on April 15th every year (unless that date falls on a weekend or holiday). It’s tempting to put off filing until the last minute, but trust me, it’s not worth the stress. Plus, if you’re getting a refund, filing early means you’ll get your money sooner.
If you can’t file by the deadline, you can request an extension, but you’ll still need to pay any taxes you owe by April 15th to avoid penalties and interest.
10. Learn From Your Mistakes
Nobody’s perfect, and chances are you’ll make a mistake or two when you’re first starting out with taxes. Maybe you’ll forget to report some income or miss out on a deduction. That’s okay. The important thing is to learn from your mistakes and do better next year.
Final Thoughts
Taxes might not be the most exciting part of adulting, but they’re a reality we all have to deal with. As a recent college graduate, taking the time to understand your tax obligations and opportunities can set you up for financial success.
Remember, you don’t have to figure it all out on your own. There are plenty of resources available, from the IRS website to tax professionals, to help you navigate the process. And don’t be afraid to ask questions—whether it’s your parents, a friend, or a financial advisor, there’s no shame in seeking guidance.
So, take a deep breath, gather your documents, and tackle your taxes with confidence. You’ve got this! And who knows, maybe one day you’ll even look forward to tax season—okay, maybe that’s pushing it, but at least you’ll feel more prepared.