- Days left

College Student's Guide to Winning the Tax Game

I think the IRS should make a game out of filing taxes. At the end of every 1040-EZ there would be a token that would give you access to your 1098-T. Upon completing this level (by slaying the evil itemized deduction list and successfully capturing the Lifetime Learning Credit) you gain entry to the maze of outrageous deductions. From here you would be free to file away, and the Publishers Clearing House people – complete with balloons and flowers, would deliver your refund check.

Unfortunately the IRS is not run by the Parker Brothers and taxes may be one of the least intuitive things ever created. But, after a few years of experience with different types of income and hours scouring the IRS website I will pass along what I've learned to help you nimbly navigate the forms, deductions and credits available to you as a college student.First, the basics: Single, under 65, and not blind? You must file if you earned more than $5,700, regardless of whether your parents claim you as a dependent. If you earned less than this, you may want to file anyway to get any refund due from taxes withheld by your employer. Some of the most common types of taxable income include wages reported on your W-2 by your employer, interest earned on savings accounts, and interest from a business you operated as a sole proprietor (i.e. freelance, entrepreneurship).

Next, make sure you are using the right form. As a full-time student under 24, your parents can claim you as a dependent (which can be of great benefit to them). You will then file a 1040EZ or a 1040A. Note that with the 1040EZ you cannot claim education credits or student loan interest reduction (which you could not do as a dependent anyway).

Scholarships and fellowships are tax-free if you a degree-seeking student at a qualified institution and you are using the scholarship/fellowship to pay for qualified education expenses. These include tuition, fees, books, supplies and equipment required for your program. These do NOT include room and board, travel or research expenses.

Say you have a $10,000 scholarship and $8,000 goes towards tuition. If you use the remaining $2,000 to pay your rent, that portion is considered taxable income and must be included on your 1040.

In my imaginary game of tax refunds, you would now be given the token to access your 1098-T. The IRS allows for certain tax benefits for education:
  • American Opportunity Credit – This education credit is expanded to include higher income levels and to cover the cost of books. You may be eligible for up to a $2,500 credit if you (or your parents, if you are a dependent) have a modified adjusted gross income (MAGI) of less than $80,000. You can only do this for four years. Forty percent of this credit is refundable. This means that even someone who owes no taxes could get up to a $1,000 refund.
  • Lifetime Learning Credit – This is a credit of up to $2,000 for qualified education expenses. Unlike the American Opportunity Credit, however, there is no limit to how many times you can claim this. Think about using it when in graduate school. You cannot take both credits in the same year.

If you or your parents have too high of an income to qualify for either of these, you may still qualify for a tuition and fees deduction, which would reduce the amount of your income subject to tax by up to $4,000. You also are entitled to deduct any interest payment you make on your student loans, up to $2,500. You cannot deduct money that goes towards paying the principal of your loans.

This article from Kiplinger explains the difference between a credit and a deduction and advises to take the credit, if you're eligible, because it is worth more.

My parting advice is to keep things simple. Or if you want, pretend the convoluted forms that you are staring at are part of an initiation to a secret society. As a student, you probably do not have to worry about things like "excess farm loss from an interest in a partnership" or the dozens of other arcane items. Don't get bogged down in more forms than you have to, but do make sure you get what you deserve as a student.

If this tax stuff sounds fun to you, the IRS has a student site with activities and simulations to teach you "the hows and the whys of taxes." Also, visit WalletPop's Tax Center for more advice, videos and links to all the forms you will need.

Sarah Smith is a junior at Loyola University Chicago majoring in international studies and visual communication. She writes for Money College about her personal finance experiences as a student.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

TurboTax Articles

Do The Math: Understanding Your Tax Refund

For most people, tax is collected by an employer at a rate that estimates your tax for the year. Your actual earnings and the deductions that you?re allowed to claim might cause you to pay too much tax, which leads the Internal Revenue Service to issue you a refund. "The idea behind a tax refund is quite simple," says James Windsor, a certified public accountant from Ann Arbor, Michigan. "When you pay more tax than you owe, the Internal Revenue Service returns the overpayment as your refund."

5 Tax Tips for Single Moms

If you?re a single mom filing your taxes, make use of tax credits and deductions that can help reduce your taxable income and reduce the amount of tax you pay. A number of strategies, credits and deductions can be used to reduce taxable income, and in some cases, allow tax refunds even if you didn?t pay in any taxes. When you use TurboTax, we?ll ask simple questions and handle these calculations for you.

5 Tax Tips for Single Parents

Filing taxes as a single parent requires coordination between you and your ex-spouse or partner. Usually the custodial parent claims the child as a dependent, but there are exceptions. A single parent is allowed to claim applicable deductions and exemptions for each qualifying child. Even though you claim your child as a dependent, she may still have to file her own tax return if she has income, such as from an after-school job.

Affordable Care Act Decoded

The health care reform law known as the Affordable Care Act may directly affect your tax liability. Many taxpayers are familiar with the requirement that most Americans either carry health insurance or pay a tax penalty. But that's just one provision, and knowing what else is in the law can help you avoid surprises come tax time.

Add a Comment

*0 / 3000 Character Maximum

2 Comments

Filter by:
aupagandl

happy new yr

May 14 2013 at 5:57 PM Report abuse rate up rate down Reply
aupagandl

happy new yr

May 14 2013 at 5:57 PM Report abuse rate up rate down Reply