10 tax tips for college grads

Most college majors don’t get students ready for handling taxes – and as they start new jobs, face a rapidly changing economy, and bear up under massive amounts of student loan debt, today’s college graduates can’t afford to ignore the perils, pitfalls and opportunities of the Tax Code.

“College may have prepared you for your profession, but it may not have prepared you for tax proficiency,” said Mark Luscombe, JD, LLM, CPA, and principal federal tax analyst for Wolters Kluwer Tax & Accounting (as well as a columnist for Accounting Today). “Unless your specialty happened to be tax, getting a tax expert on your team early can help guide you through many tax-related decisions as you move from the halls of ivy to the halls of business.”

Graduation photo
Graduates listen as Vikram Pandit, chief executive officer of Citigroup Inc., speaks during the Columbia University School of International and Public Affairs commencement at Riverside Church in New York, U.S., on Monday, May 17, 2010. Photographer: Daniel Acker/Bloomberg

With that in mind, Luscombe and Wolters Kluwer have compiled a list of top tax issues that college graduates should pay attention to.

1. Coordinating with their parents
Their parents may have been claiming them as dependents, which will probably need to change once they enter the workforce.
2. Student loan interest
The tax breaks for tuition, fees and other college expenses they or their parents may have been getting while they were in school can continue for interest paid on outstanding student loans after graduation, but the rules are a little complicated, and consulting a tax professional is a good idea.
3. Continuing their education while starting work
Work-related continuing education is no longer deductible as a miscellaneous itemized deduction, but it may still qualify for exclusion from income if it’s part of an employer-provided educational assistance program. The Lifetime Learning Credit may also be available for graduate school or other post-college training.
4. Retirement accounts
They should start contributing as much as possible to retirement accounts, from 401(k) plans offered by employers, or IRA or Roth IRA accounts.
5. Health insurance
In addition to an exclusion for employer-provided health insurance, there are also tax-advantaged health savings accounts and flexible spending accounts to consider.
6. Graduation gifts
Gifts are not taxable to the recipient, and, unless very large, may not be taxable to the giver either.
7. Side gigs
Students often have had some experience working side gigs while in school, either as an employee or on their own. They should keep good records of business-related expenses, which can be deducted if they are self-employed. Self-employed graduates may also face the shock of having to pay estimated taxes and self-employment taxes.
8. No more moving expenses
Prior to 2018, the expenses of moving to a new job could qualify for a tax deduction. However, as a result of the Tax Cuts and Jobs Act, those expenses are no longer deductible except for members of the armed forces.
9. Part-year withholding
Starting a job mid-year can result in over-withholding based on the assumption that the employee earned the same amount for the entire year. Newly employed grads should check with their employer to see if part-year withholding is available.
10. Record-keeping
Grads should keep a file of tax-related documents, such as expense receipts and tax statements, so that they are ready for their tax professional when tax time rolls around.