Graduating from college comes with a slew of mixed emotions and a world of opportunities, including some that may not have crossed your mind. Kiplinger's June 2008 issue recognizes that tax breaks aren't part of most students' college curriculum and rounded up all the tax breaks it could think of for newly graduated 20-somethings.
- Moving expenses: New grads can deduct the cost of moving themselves and their belongings to their first job out of school, as long as the job is at least 50 miles from their old residence.
- Saver's credit: Depending on their income, some young adults can trim their tax bill by up to $1,000 as a reward for contributing to an IRA, 401(k) or other retirement plan. The credit is available to singles with an adjusted gross income of less than $26,000 and married couples whose AGI is less than $52,000.
- Student-loan interest: Young people can write off up to $2,500 of interest on student loans each year even if they don't itemize deductions. And now they can also write off student-loan interest paid by their parents. The IRS considers payments by parents on a child's loan to be a gift to the child.
- Roth IRAs: Roths are primarily for retirement savings, but they're flexible enough to be used for a down payment on a house. You can withdraw contributions to a Roth at any time without paying taxes or a penalty. And after the account has been open for five years, you can also withdraw up to $10,000 of earnings tax- and penalty-free to buy a first home.
- Tax forms: In order to get all of these benefits, it's important that young adults not file the Form 1040EZ. Filers can't claim the saver's credit, write off moving expenses or deduct student-loan interest on this simplified form. Instead, they should use the standard Form 1040.