Filing taxes is another wake-up call to the real world. If you dont have a paid job and your parents are claiming you as a dependent, you dont need to file an income tax return. If you have a paying job regardless if your parents claim you or not, you should file. A few things you should know include:
Make sure to file your return.
You may not have made much money, but if youve had money withheld from your paychecks, you probably have a refund coming. If you havent received your W-2s, your final pay stub for the year will have the pertinent tax information, such as your income and how much was withheld. You can go online and download tax forms. You have many options to file your taxes electronically, but some people find it easier to prepare their taxes on paper forms and then transfer the information to the electronic version. If you need a little help with tax preparation, you have some options. Many college accounting departments offer free tax help so students can practice with real-life returns. Many communities have Volunteer Income Tax Assistance sites where you can get help from IRS volunteers. Make sure to keep copies of your tax return and store them in a safe place.
Give yourself plenty of time to complete your return.
Filling out your forms won’t take a long time. Allow yourself sufficient time to complete your return and ask any needed questions. Set it aside for a few days and then check your numbers again before you send it in. Its a bad idea to wait until taxes are due to complete your return. You do not have the opportunity to clarify anything you may not understand. This means you may miss something that reduces your tax burden. Unfortunately, the IRS is not going to say Heres some extra money you may have forgotten.
Be aware of your options.
College students (or their parents) are getting some help from the government in the form of credits and deductions. You must choose between taking either the Hope or the Lifetime Learning credit. Both cannot be taken by the same student in a single tax year. Whoever claims the student as a dependent is eligible for the credit. Choose the one that best suits your situation:
Understand your familys financial situation.
You need to know a little about your parents financial situation to plan on who should claim you as a dependent and use your education credit or deduction. If your parents are paying more than 50% of your expenses, they are entitled to list you as a dependent on their taxes. If your parents claim you as a dependent, you cannot claim yourself on your income tax return. Keep in mind that the education tax credits will wipe out taxes that you owe, but they won’t generate a refund. If you’re not making much money and don’t owe any taxes, these credits can’t help you. Unless you expect to owe the IRS a chunk of money, chances are your parents will get more out of a credit or deduction than you will.
Determine where you live.
Sounds easy, right? Not when it comes to taxes. If you’re going to college in one state and spending summers at home in another, you could have two states wanting your tax dollars. Qualifications for residency depend on the state. In some situations, you can be considered a full-time resident of two places and be required to pay taxes to both states.
Know the origin of your tuition money.
If any of your tuition bill was paid for with money from a 529 account, you can’t count those expenses in your total education debt when you try to use an education credit or deduction. Since 529 money accumulates tax-free, the government has already given you a tax break on those funds. Grant and loan money is generally tax-free, but there are always exceptions. Read the fine print for any money you receive so youre prepared at tax time.
Be careful with work-study arrangements.
These programs are taxable. Most colleges issue checks to students and take the proper withholdings. If you’re not getting a check, make sure that you’re putting some money aside to cover your tax burden. If your school gives you a break on tuition in exchange for work, your “income” is taxable. Talk to the program director for more information.
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