Those newly graduated from college and starting out into the wide wide world can take comfort in the fact that the tax code can help them out in the areas of paying off student loans as well as relocating to their new jobs. However, do not be surprised to learn that they cannot, however, deduct expenses they incurred while searching for a job.
Under the Taxpayer Relief Act of 1997, the first $2,000 of interest that is paid on a student loan is deductible. This deduction is available for the first 60 months that interest is required to be paid on a loan. Even more good news is that the taxpayer does not need to be itemizing their deductions in order to be able to claim this deduction, as is the case with most other types of deductions. This can be very helpful, as most college grads do not have enough deductible expenses to qualify for itemizing and therefore take the standard deduction.
However, before they can deduct the interest on their return, they must make sure that the loan is in their name and not their parents, and that they are the one who is liable for the loan. If their parents are the ones who took out the loan for them, the interest can be deducted on their return but not the children's, even if the child is the one paying off the loan. The child must also be sure that they cannot be claimed on their parents' return as a dependent, otherwise they cannot take the deduction on their tax return. Finally, if their adjusted gross income exceeds $60,000 on a joint return or $40,000 on a single return, the deduction will start to phase out.
As for the relocation factor, if the taxpayer is relocating to a different city in order to accept an employment offer, remember keep their receipts. Some of these costs may be deductible on their tax return that is if their company is not reimbursing them fully for their moving expenses.
Costs that are eligible for the moving deduction are transportation to their new job location; the costs incurred for shipping their household goods and hotel costs they incurred en-route to their new home. Once again like the student loan interest deduction, this moving expense deduction can be claimed regardless of whether they itemize their deductions or take the standard deduction on their tax return.
One advantage the college grad does not have over others is being able to deduct job-hunting expenses on their tax return. Tax deductions for job-hunting expenses are available, but not for them. They are only available to those that are currently employed or have become recently unemployed. This can be a bummer for those of the college grads who spent an ample amount of money in their job search, however, this is the only downside to their newly found tax status. Rejoice in the other two deductions that are available to them!