As you know, college brings a wealth of challenges. Aside from coursework, grades and adjusting to a new social environment, you’ll have to contend with managing your finances — including your taxes. Take some stress out of your tax preparation by keeping these factors in mind.
Understanding your tax liability
If you earn less than $12,000 per year, you are not legally obligated to file a tax form. However, your income may include more than just your paycheck. If you receive educational funding received in exchange for services, including research and teaching, you have to report it as income. Furthermore, if you’re receiving money for room, board and travel expenses, that money may also count as taxable income, according to personal finance writer Susannah Snider. Certified public accountant Amy Barry recommends that you file your taxes if you’ve had money withheld from your paycheck, regardless of your income, since you could receive a tax refund.
Dependency status matters
When filing your taxes, it’s important to know if your parents plan to list you as a dependent on their taxes. This provides them with a significant tax break. However, when you’re claimed as a dependent, you can’t qualify for certain benefits when filing your taxes. Speak to your family and consider consulting with your family’s accountant to figure out whether you would benefit from being claimed as a dependent. To qualify as a dependent, you must be under 24 and enrolled as a full-time student. If you’re a part-time student, you can only be claimed up to age 19. Furthermore, to be classed as a dependent, you can’t provide more than half of your financial support. However, even if you fall within the age and income requirements, you may not qualify. For instance, if you’re married or have a family of your own, your parents can’t claim you on their taxes.
Have information on hand
As soon as you begin to rifle through the tax forms you have to fill out, you’ll discover that you need to have a lot of information on hand. Instead of enduring the frustrating process of getting up and searching for each tidbit of information that’s needed to fill out the forms, gather some data before you begin. Have your social security number on hand, along with those of your spouse or children, if applicable. Also, keep your W2 and 1099 forms handy, as well as a record of your retirement contributions, school expenses and charitable contributions, along with any state, local and real estate taxes that you’ve paid. If you filed your taxes last year, you’ll need to have those tax returns on hand, too.
Extra credit isn’t just for your grades
Save a little money during tax season with the American Opportunity Tax Credit. This benefit is designed to help you with educational expenses for four years of your college career. It’s a $2,500 tax credit, and if it eliminates your tax liability, you can enjoy a $1,000 refund. If you’re a grad student, you don’t qualify for the AOTC, but you can deduct up to $4,000 in fees and tuition. Personal financial specialist and certified public accountant Gina Chironis recommends that grad students consider the Lifetime Learning Credit, which can shave $2,000 off your tax burden.
Although filing your taxes can be intimidating, many educational institutions offer a free program called Volunteer Income Tax Assistance, which can provide you with tax advice from a qualified professional. If you have more questions about how your college impacts your taxes and finances, consult with your family, one of our financial advisors or your family’s trusted tax professional.