By Eric Garneau
No one would object to the notion that tax laws are confusing - that's one of the reasons accountants make as much money as they do, after all. If you're a younger college student, you may not have given too much thought to taxes before. However, that oversight could be a mistake. Filing taxes can save you both money and a ton of trouble with the law. If you're in college, what do you need to know about taxes?
1. Do I have to file?
Well, maybe not. The federal government requires you to report your earnings only if you meet certain qualifications (which most working adults do). Have you made more than $5,000 at a job, or more than $400 self-employed? Have you reported all your tips to your employer? Did you sell a house (probably not applicable to many college students)? If you answer yes to these questions or others from the IRS, you're required to file your taxes by April 17, 2012. However, it seems reasonable to suggest that these questions won't really hold true for most college students (you'd have to spend a lot of time working, or have a pretty great job, to make $5,000 during the school year), so legally, you may be off the hook.
2. But SHOULD I file?
Even if the government won't come knocking down your door for a record of your income, it's probably a good idea to give it to them. Why? Well, for one, refunds! If you worked at all during the school year, your employer almost certainly took money out of your checks to cover government taxes. When it comes time to file, students - who typically don't have giant incomes - can get a lot of that money back. Why would you not want it? Even though it can cost money to file taxes (depending on who/what prepares them and how complicated your finances are), your refund will generally cover that fee and then some, and some tax preparers even take their money out of your refund, which means no up-front costs to you. In fact, many students' taxes are simple enough to use the popular 1040-EZ, which is easy and free!
3. What kind of deductions can I take?
Part of what makes taxes so difficult to understand is all the different credits and deductions you can take on them to bump up your refund. For students, there are a couple major options available, depending on who pays for college and how your parents share their finances. Among the big ones are the Tuition and Fees Deduction, the Higher Education Expenses Deduction and the American Opportunity Credit. Typically these credits can't all be claimed, and both you and your parents can't claim them - it's got to be one of the other. So sit down and have a talk with mom and dad (maybe over Skype) about finances and how all parties stand to benefit if you get claimed as their dependent or not.
4. How do I file?
We touched on this a bit above, but when it comes to actually getting your taxes done, you have quite a few options. Some schools actually have programs in place to help first-time filers take care of business, so check in with your student union or legal services group. There is also a national organization that offers free tax assistance for simple tax questions called VITA (Volunteer Income Tax Assistance) that has many branches on college campuses.
Failing that, there are plenty of massive chains like H&R Block and Jackson Hewitt that would surely be happy to help you square up with the government for a small fee; these stores have locations nationwide and typically provide easy scheduling, quick appointments and low cost (they're kind of like the Walmart of tax prep; in fact, often Walmarts will have a tax-prep kiosk sponsored by a major chain in-store!). If your family has an accountant they typically work through, you could have him or her do the job, though it will probably be more expensive (but perhaps mom and dad will cover it). Finally, there are lots of do-it-yourself computer programs like Turbotax you can use, though if it's your first time and you're not too sure of tax laws or what you can claim as deductions, you may want to seek out expert help.
Looking to do your taxes - and everything else - on the cheap? Check out the best money-saving tips for students.