Do I really need to file a tax return?
That depends. You don't have to file a tax return unless you've made $5000 or more from a job. If you have interest income, this will also affect whether or not you need to file. Just because you don't have to file a tax return, doesn't mean you should not. According to Kiplinger.com, in When Children Must File a Tax Return, "kids often get back most or all of their income taxes." Therefore, if you had money withheld from your paycheck, you will definitely want to complete a tax return. In addition, you may be entitled to certain credits on your taxes just for being a student.
What counts as income?
- Any interest income from your bank.
- Income reported on your W2 forms by your employer.
- Business income as a freelancer or entrepreneur on a Schedule C form. (This would include selling cosmetics, peddling t-shirts, doing web design for a fee, or writing articles for Internet Web sites.) Remember that if you report business income, you can also report business losses and expenses such as mileage. Keep track of all of your receipts so you can report your business expenses.
Note: Don't make so much money as a college student that it cuts off your financial aid and need-based scholarships.
Can my parents claim me as a dependent?
Independent students claim a personal exemption on their tax returns; thus their parents can no longer claim them as dependents. But if your parents pay more than half of your expenses, they can claim you as a dependent. Consider the advantages of this. If your parents don't claim you on their tax returns, their health insurance company may also cut you off.
According to moneycentral.com, "the available education tax credits will wipe out taxes that you owe, but they won't generate a refund. If you're not making a lot of money and don't owe any taxes, these credits can't help you." If your parents will benefit greatly by claiming you as a dependent, a compromise may be in order. Perhaps you can request some extra money if they claim you as a dependent -- and get a refund as a result.
What forms should I use for my income taxes?
The 1040EZ form assumes you are independent from your parents. If you use this form and your parents claim you as a dependent, you will both end up in hot water with the IRS. Instead, use the standard 1040 tax forms, which will also allow you to claim business income or losses, claim tax credits and income tax deductions.
What deductions can I take on my income taxes?
You can claim the Tuition and Fees Deduction, the Hope or Lifetime Learning tax credit, and the Higher Education Expenses Deduction on the tax return of whoever pays tuition. You must decide which of these deductions you will take, as you cannot take them all. In addition, don't claim a deduction on money from a tax-free education savings account.
Related websites: Walletpop.com taxes