Beware of a new partner on your first job!

As you take up a full-time job for the first time, you are subject to a tax range between zero per cent to 35 per cent.  The social security tax and the Medicare tax will take 7.65 per cent of your salary up to $102,000 right from dollar one.  Thereafter, 1.45 per cent of your tax will continue to go for Medicare.  You are also subject to income tax by states depending on where you live.

Here are some valuable Tips

1. Expenses for hunting the job – if it is you first job; you cannot deduct the cost of looking out for a job.  However, whenever you change your job thereafter, expenses like preparing resumes and travel expenses for job interviews are deductible.  The only condition is, you should look out for a job in the same line.  These costs can be deducted as miscellaneous expenses.  If you want to claim these expenses, you can do so by itemizing and they should exceed two per cent of your adjusted gross income (AGI)
2. Expenses for moving – If you have to move to get your first job, you can deduct the related moving expenses.  These expenses can be claimed without itemizing also.  The only condition is –your workplace should be at least 50 miles away from your residence.  You can either deduct the cost of moving household goods on the basis of actual or claim 19¢ a mile if you have moved by your vehicle between January 1 and June 30, 2008.  If you have moved thereafter, you can claim 27¢ a mile towards your expenses.
3. Set your withholding correctly – This is the mistake majority of the workers make.  Why nearly 100,000,000 taxpayers have to claim tax refunds every year?  Because they allow too much withholding from their paycheck.  When you commence your first job, you will be asked to fill W4 form.  This form will tell how much Federal income tax can be taken out of your check for IRS.  The figure is based on your salary and the allowances you claim on your W4.  You should read the instructions very carefully in order to include all the allowances which you are entitled to claim.  This will cut down your withholding substantially.  If you are commencing your job in the mid of the year, you should request your boss to set your withholding based on your actual earning.  This will make the calculations based on your actual earning rather than on one year basis.  Naturally, this puts more money in your pockets.
4. Signing up 401(k) – If the company you joined is offering 401(k) retirement plan, you should take it.  Most of the firms offer matching contributions.  You should contribute enough to get matching money from company contribution.  If you are joining a traditional 401(k), the amount will go as pre-tax salary into the plan.  That means if you are in a tax bracket of 25 per cent and contribute $1000, your home pay will drop by only $750 but you will have $1500 in your 401(k) account. If your company is offering Roth 401(k), it is still better for you to take.  With this plan, you may be eligible for a special tax credit.  This credit is in the range of $200 to $1000 depending on how much you put in your retirement plan.  If your income is below $26,500 ($53,000 for married filing jointly) you can qualify for the credit.
5. A reimbursement account for the medical expenses – If you put money out of your salary in this account, you can use the money to pay your medical bills.  The advantages: you need not pay income tax and social security on money put in this account.  Paying your medical bills from this account can save up to 25 per cent as compared with the spending your after tax money.
6. Enjoy fringe benefits – Fringe benefits give you double benefit.  Firstly your employer takes care all or part of the cost and the benefit comes tax-free.  Suppose you are in 20 per cent bracket, you pay $200 tax on $1000 fringe benefit while you can earn $1333 for the items you buy with the after-tax dollars. You can use fringe benefit to cover many items like medical and dental insurance, free parking valued up to $220, transit passes value up to $115 for a month, company car and group term life insurance.
7. Stock options – This gives you an opportunity to buy the stock of your company at a discount. The incentive stock options (ISOs) give you an opportunity to buy stocks without paying any tax.  However remember the alternative minimum tax (AMT).  If you are hit by this deadly tax system, you need to pay tax on the benefit you get out of it – that is the difference between the market value and the value you paid for.  You need to be very careful about these complicated tax provisions if stock options are offered to you in your employment package.