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Q&A: What tax records should I be keeping in my 20s?

When you’re young, living at home, and all you have at tax time is a single W2, filing your taxes is pretty simple.  In fact you canfile your federal return online for free at IRS.gov. Most states have a free file online option as well.

But as you get older, your financial life gets a bit more complicated, and so might your taxes. Here are some things to remember throughout the year that will help you make the most of the available deductions.

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If you’re still in college and your parents are claiming you, do them a favor and keep your book receipts. They may be able to claim them as part of the American Opportunity Tax Credit. Paying down student loans after graduation isn’t fun, but you may be able to deduct the interest paid on them. This can be easily overlooked because many times your Form 1098 is not mailed to you but posted electronically (I know, I forgot my daughter’s last year!).

The tax code allows for some miscellaneous itemized deductions that include unreimbursed employee expenses. That means that if you pay union dues for your job or have to purchase supplies, you may be able to deduct them. The catch is you first need to be itemizing deductions instead of taking the standard deduction, which you may not be unless you own a home.

Even so, you can only deduct the amount that exceeds 2 percent of your adjusted gross income. Some states like Pennsylvania allow a deduction for those unreimbursed expenses without regard to a floor or itemization though. You’ll need to save receipts, and your last paystub of the year should show your union dues paid. Teachers currently can deduct up to $250 of supplies purchased (without reimbursement) even if they don’t itemize.

Becoming a homeowner usually gives you enough tax deductions to exceed the standard deduction and start using a Schedule A for itemized deductions. For that form, you’ll need to have your mortgage statement from your bank showing interest paid and your real estate taxes. If you pay them yourself, be sure to have a receipt from your tax collector showing how much you paid. 

In the year you buy your home, you may find some additional deductions hidden in your settlement statement, or HUD-1. Look specifically for real estate taxes you reimbursed the seller for at closing. Note though that in your first year of a homeowner you may not yet have accumulated enough interest and taxes to jump the standard deduction hurdle.

READ: Three financial habits to develop in your 20s

Itemizing your taxes also allows you to deduct charitable contributions  as long as you have a receipt (a cancelled check will do for single gifts less than $250). Cash donations won’t stand up to IRS scrutiny unless you have a receipt. Don’t forget to deduct any state taxes you paid in that tax year for a prior year’s balance due.

Looking for or changing jobs can help you at tax time too. In that miscellaneous itemized deductions category, you can add in costs for job hunting, including resume services. Did you move to change jobs? If your new workplace is more than 50 miles from your old home than your old job was from your old home; or if you did not have a previous job, more than 50 miles from your old home you may be able to deduct moving expenses.

You must also work full time for at least 39 weeks during the 12 months following your move. Keep track of the miles you drove, save receipts for any rental truck, storage fees, hotels, but no meals.

Keeping good records and saving receipts is work that pays a nice dividend with tax savings.

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