This summer, thousands of high school seniors have walked across the stage, collected their diplomas, and tossed their caps in the air to celebrate the end of a major chapter in their lives. However, once adulthood comes along, there are lots of tax and financial rules and consequences to know about. Check out these financial and tax tips for recent high school grads:
— Save money.
If you haven’t done so already, start saving money. Individuals who put away a little money on a regular basis starting at a young age can enjoy some fantastic financial flexibility later in life. Even though young people are often strapped for cash, it doesn’t take all that long for a little savings to turn into a big amount. Set aside a small amount of money you make from your part-time or full-time job. Consider getting some type of savings account at your bank of choice, such as a Roth IRA. Even saving as little as $20 or $30 a month can really come in handy when you need to make an important purchase down the road.
— Explore tax credits and deductions for higher education.
If you plan to enroll in a college or university this fall, you may be able to claim some beneficial tax credits for higher education. The American Opportunity Tax Credit and the Lifetime Learning Credit are available to many students or their parents to help reduce the costs of higher education. In addition, the tuition and fees deduction and the student loan interest deduction are other tax breaks to consider. Keep in mind that these tax credits and deductions have certain limits on them in terms of your income and how much they are worth.
— Understand the concept of a student loan.
Higher education isn’t cheap, even for in-state residents who go to school at a small-town college. That’s why many students take out student loans to help pay for their classes and textbooks. Just remember that you must pay back this money to the school or other provider of the loan. The good news is that student loans tend to have a more flexible pay schedule than other types, and the interest rates for them are generally much lower than other loans.
— Look into scholarship opportunities.
There are thousands of scholarship opportunities out there for students. Whether you excel academically, athletically, or meet a certain income level, there just may be some money waiting for you from any number of organizations out there. Scholarship money can greatly reduce your tuition and textbook costs, particularly if you are lucky enough to receive it over the course of your entire career in higher education.
— Ask yourself “Is it a want or a need?”
It’s tempting for all of us to buy things because a product or service makes us feel good for a short time. But this isn’t always the best practice, especially if you don’t have a ton of money in the bank. Ask yourself if something you have your eyes on is a “want” or a “need.” Is it something that you’ll enjoy temporarily? Or is it something that could benefit you long-term? A “want” may be an expensive pair of shoes or the latest smartphone. A “need” may instead be a laptop you’ll use for college or a reasonably priced used car you’ll need to get around for the next few years. Overall, take time to make sure you are spending your money wisely before swiping your credit card.
— Know a thing or two about Uncle Sam.
Most 18-year-olds don’t have an in-depth knowledge of Uncle Sam and the IRS. Because of this, it is worth educating yourself on tax basics. Take a look at the federal income tax brackets for the current year. Read up on what a “tax deduction” is and why it’s a good thing. Knowing just a little about taxes will ease some of your stress level when you suddenly find out how much of the hard-earned money you make now or will down the road actually goes toward paying taxes.