You have a newly minted diploma and high hopes for landing your first job. But before you climb that first rung of the career ladder, there are some basic rules to understand about income taxes. Think of it as Taxes 101.
Filing your taxes. So you're getting ready to file your first tax return as an independent person. First question: Who gets to claim an exemption for you and shelter $3,700 of income from 2011 taxes? You or your folks? The answer depends on the circumstances, not on the results of a family meeting.
Your parents get the exemption if you were under 24 at the end of 2011, were a full-time student in at least five months of the year, lived at home more than half the year (living at college while you finished up can count as living in your parents' home) and did not provide more than half of your own support. If you're older or did provide more than half of your own support, for example, then you claim your own exemption. This is an either/or deal. If your parents qualify to claim you as a dependent, you cannot claim your own exemption.
Student loan interest. As soon as you can claim your own exemption (it will be worth $3,800 on 2012 returns), you also can start deducting interest paid on your student loans. You can write off up to $2,500 a year in interest on those loans. Even if your parents pay interest on a loan for which you are liable, you can deduct that interest. But you can't use the 1040EZ form. To claim the student loan interest deduction, you'll have to use the longer 1040A or even-longer 1040 form.
There's a separate line for student-loan interest, and you can claim it regardless of whether you itemize other deductions. The right to claim this write-off phases out at higher income levels, starting out at $60,000 for individuals and $120,000 for married couples filing jointly in 2011.(The phase-out zone for couples starts at $125,000 in 2012.)
Job hunting. While it can be costly printing your résumé and traveling to interviews for your first job, you can't deduct those expenses. But don’t assume that ban is forever: The cost of searching for subsequent jobs in the same line of work can be deductible.
Moving expenses. There's no prohibition against deducting the cost of moving to your first job. If you accept a job and have to move more than 50 miles from your current home for work reasons, you can deduct moving expenses that are not reimbursed by your new boss, including a mileage allowance for driving your own car. For moves in the first half of 2011, you can deduct 19 cents a mile; for moves in the last six months of 2011, the mileage rate is 23.5 cents a mile; for moves in 2012, the rate is 23 cents a mile. You can claim the moving expense deduction regardless of whether you itemize deductions.
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