As if major events aren’t stressful enough, most come with surprising tax side-effects. These changes can impact how you file your taxes, credits you are eligible for, tax rates and extra filing requirements. This is the first blog in a series of blogs we will be highlighting to make sure you are prepared and to take some of the surprise out of each milestone.
Wow! You’ve done it! You’re out of school and ready to take on the world…and responsibility for your own taxes. Whether you’re lucky enough to have been supported by your parents or you’ve paid your own way by working odd hours and taking student loans, get ready for some changes.
So, you graduated, you aced your interview, and now you’re starting your “real” job. The job with a business card. The job with a salary. The job that means your parents can’t claim you on their taxes anymore. Wait, what does that mean?
It means when you’re filling out your new-hire paperwork, pay special attention to Form W-4. This form tells your employer how much tax to take out of your pay. It’s tempting to rush through this but if you do it right you will find the tax sweet spot – that magic place where you get the most cash in your pocket AND don’t have to pay the IRS at the end of the year. Take the time to read the questions and save yourself the pain of writing a check to Uncle Sam next April.
This also means if you did take out student loans to help pay for school, you’re going to have to start paying them back. Be proactive and make sure you know your monthly payment amount well before the first payment is due – there can be surprises that are great, but an unexpected $500 student loan payment isn’t one of them. Then, check with your loan administrator to see if there are interest rate discounts for auto-pay. This can save you big over the long haul by allocating more of your payment toward the principal and avoiding late payment fees. Another good idea is to consolidate multiple loans. It’s easier to track and pay down a single balance than many balances with different companies and due dates. And don’t forget to tell your tax preparer you have student loan interest. Most recent graduates are able to deduct at least a portion of the interest they pay on student loans.
Finally, if you’re on your parent’s health insurance, you’ll want to get switched over to your own. If your employer doesn’t offer health insurance, there are options available through HealthCare.gov. Current laws require you to have health insurance coverage or face a potential penalty on your tax return. There are credits and assistance available, so make sure you ask your tax preparer and discuss your situation.
Go forth and conquer!