While they probably don’t own a home yet, there are still plenty of good deductions that taxpayers still in their 20s don’t want to miss.
The professional income tax experts at the National Association of Enrolled Agents (NAEA) has assembled a list of often overlooked tax deductions that should be taken advantage of by members of the millennial generation – or anyone who has recently been in school or job searching.
The Tuition and Fees Deduction
This deduction allows a taxpayer (who may be a full-time or even only a part-time college student) to deduct a maximum of $4,000 for paid tuition and fees. For 2012, students with an adjusted gross income (AGI) of $65,000 or less ($130,000 or less if married filing jointly) will qualify for the full $4,000 deduction. Above those income thresholds, the value of this deduction begins phasing out. If your AGI is above $80,000, or $160,000 for married filing jointly, the deduction will not be available to you.
Student Loan Interest
If you have paid interest on student loans, you may be able to take the Student Loan Interest deduction, which could reduce your taxable income by up to $2,500 of the student loan interest you have paid for you, your spouse, or your dependent. This also includes the one-time "loan origination fee" charged by your lender which may not be listed on your 1098-E. Contact your student loan company if you don’t receive a 1098-E reporting how much interest you paid during the year. This deduction is available for qualified taxpayers subject income limitations similar, but slightly different than those for the above Tuition and Fees Deductions. Yes, income ranges and thresholds vary with each deduction type!
Job Hunting Costs
The job expenses associated with looking for your first job won’t qualify, but expenses incurred when you’re looking for a position in the field you previously worked in will. These expenses include food, lodging and transportation if you have to be away from home overnight, cab fare, employment agency fees and the costs of printing resumes, business cards, postage and advertising.
A new job often means a move. IRS says you can deduct your moving expenses if you meet all three of these requirements: Your move is closely related to the start of work; you meet the distance test; you meet the time test.
The first criterion means that your move must be closely related both in time and in place to the start of work at your new job location. In most cases, you can consider moving expenses incurred within one year from the date you first reported to work at the new location as closely related in time to the start of work.
If you go to work full time for the first time, your place of work must be at least 50 miles from your former home to meet the distance test.
If it’s not your first job, then the new main job location must be at least 50 miles farther from your former home than your old main job location was from your former home.
The time test for employees requires that you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location. Full-time employment depends on what is usual for your type of work in your area.
The deductions above are just a few of the ones that are commonly overlooked. To be assured that you’re not paying more in taxes than you should be, meet with an enrolled agent. Enrolled agents are federally-licensed tax professionals that can help taxpayers with tax preparation and have the right to advocate on their behalf before IRS.
To get in touch with an enrolled agent in your area, visit the “Find an EA” directory on the National Association of Enrolled Agents website, www.naea.org.