What every college student needs to know about filing their taxes
Tax season is almost here.
If you're a college student, you may not think much about your taxes, especially if your main focus isn't solely on your earnings right now.
However, you may be able to qualify for a refund, which might make you excited.
If you're planning on filing taxes this year and need a crash course regarding the process and what you need to know, you're in the right place.
Determining Your Status
First, if you want to file this year, you'll need to determine your filing status. Understanding whether you're an independent or dependent student can help with this.
If you are a dependent student, it means that someone else can claim you on their taxes. You should also have to report your parent's income while you apply for financial aid through the FAFSA.
If you are independent, it means that no one can claim you on their taxes and you won't need your parent's income for the FAFSA.
Most independent students are married and/or have at least one child who is their dependent. Dependent students might be able to file their taxes as 'head of household' or 'married' if they are married.
How to Know if You Need to File Taxes in College
College students still need to pay taxes. Even 16-year olds with a part-time job pay taxes through their employer. Whether you need to file a federal tax return depends on your gross income, filing status, age, and status (dependent or independent).
According to the IRS website, if you are an unmarried dependent student, you must file a return if your earned and/or unearned income exceeds certain limits.
Earned income is what you are paid from an employer for active work, while unearned income includes things like interest, dividends, and capital gains.
If you were under the age of 65 at the end of 2016 and your filing status is single, you must file a return if your gross income for the year was at least $10,350.
During my first year of college, I earned way less than this amount. I remember going in to see a tax preparer to file my taxes and being told I didn't need to file. Even though I was a parent at the time, I didn't earn enough money to say that I could support myself and my son solely off my income, so my mom was able to claim us for the year.
You can refer to this chart below which was taken directly from the IRS Publication 501 for exemptions, standard deductions, and filing information for more details about whether you should file depending on your filing status.
Be sure to check with your parents or a tax professional to determine whether you should file taxes this year.
Understanding Tax Benefits For College Students
Tax breaks or benefits are great because it means the government can provide a reduction for your taxes, often done by excluding income from your tax return.
This is perfectly legal so don't worry.
College students may be able to take advantage of certain tax benefits as long as they're enrolled in an accredited university, college, vocational school, or even adult education classes.
There are two education-related tax credits to consider, and they are the American Opportunity Credit and the Lifetime Learning Credit.
The American Opportunity Credit applies only to college students during their first four years of post-secondary education, and it allows you to claim up to $2,500 per year. The credit also covers 100% of the first $2,000 of qualified tuition, required fees, and qualified expenses, plus 25% of the next $2,000.
You must be enrolled at least part-time for at least one academic period which can begin during the tax year, and 40% of the credit is refundable, so you may receive $1,000 as a tax refund even if you owe no taxes.
Tax credits like these are great to take advantage of because they can lower your taxable income, allowing you possibly receive a larger return.
The Lifetime Learning Credit can help you pay for undergraduate, graduate and professional degree courses, and the number of years you've completed in the program doesn't apply. Eligible students may qualify for a credit up to $2,000.
What If You Receive Grants or Scholarships?
You'll be glad to hear that you don't have to pay taxes on grants or scholarships you receive while in school. Most grant or scholarship money goes directly toward your educational expenses anyway, whether it's an athletic scholarship or an educational grant.
However, if you land a job at school or a work study position, you have to report your income.
With that being said, apply for as many grants and scholarships as you can to lower the costs of college since you won't have to worry about any tax penalties.
How Should You File?
If you've already determined your filing status and are ready to file, you have a few options to consider.
First, you can e-file online for a low fee. E-filing is very popular so long as you choose a secure platform like TurboTax or Efile.com. It's also pretty easy, and considering the fact that you're in college, your taxes shouldn't be that complex to file. Plus, there are resources and tutorials to walk you through the process.
If you don't feel comfortable e-filing by yourself, you can always take all your documents to a tax preparation office. Well-known franchises will get the job done with no problem, but they often charge higher fees, which could eat into a tax refund you might get.
You can also see if your family has an accountant they usually go to or see if there are any community programs that will allow you to file your taxes for free. I used to get my taxes filed for free for years since my old community college rounded up volunteer CPAs every year to file taxes for people in the community twice a week during tax season.
There were income limits for single and married people, but since I was in college and not earning much, my income always fell below the limitations.
What You Need to File
Whether you are filing online or in person, you need to have the following documents on hand:
- Driver's license or government issued ID
- W-2 earnings statement from employer
- Social security card
- Record of any self employment earnings and expenses
- Last year's federal and state tax returns if you filed
- Social security numbers and birth certificates for dependents
Filing your taxes as a college student can seem stressful and confusing. Be sure to take your time and ask tax professionals lots of questions if you need clarity on anything.
You have until April 18 to file this year, so there's still plenty of time to get organized and figure out everything you need to know.
What Every College Student Needs to Know About Filing Their Taxes is a post originally published on: Everything Finance - Everything Finance - Its all about Money!
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