The tax breaks below apply to everyone but if your in your 20’s you are in a stage of your life where one of them will likely apply to you. Lets face it, you are probably not married, you don’t own a home and you don’t have kids so you do not get any of the traditional tax advantages however there are some great tax credits and deductions that can work for you.
The first thing to check is to see if your parents are claiming you as a dependent on their tax return. If they are still paying your bills and giving you a place to live they probably are. But it might make more sense if they don’t.
If you are out on your own and making your own income, you should not be a dependent on your parents tax return. Have a talk with Mom and Dad to make sure you are all selecting the most tax beneficial situation.
On to the three big tax breaks.
AMERICAN OPPORTUNITY CREDIT – If you are going to college, this applies. Basically you can get up to a $2,500 tax credit per year for higher education expenses. So if you paid more than $2,500 in higher education expenses, those can be a tax credit for you. This is a tax credit, not a deduction so the $2,500 goes directly back into your pocket. But it is not available if you are a dependent on your parents return or make over $80,000 a year. Ask your school for form 1098-T and give that to your tax professional. NOTE: If you are past your first 4 years, there is a lifetime learning credit which gives you back 20% of higher education expenses.
STUDENT LOAN INTEREST DEDUCTION – If you went to college it is likely you have student loans. You can also deduct up to $2,500 of student loan interest from your Taxable Income. This is an above the line deduction meaning you get to take it regardless of if you itemize your deductions or take the standard deduction. Ask the company you have your student loans with to provide you with a 1098-E and give that to your tax professional.
MOVING EXPENSES DEDUCTION – Many people in their 20’s are moving to find a good job. They might have went to school in a certain area but needed to move for a good job somewhere else. If you move more than 50 miles from your home, you qualify for this. Make sure to keep good records of all moving expenses including miles driven, lodging, and transportation of household goods. All of these can be an above the line deduction.
Have fun this tax season trying to ensure you are getting the maximum tax refund possible.