Spring is in the air. Birds are singing. But you wouldn’t know it. You’re up to your eyeballs in term papers, homework and mid-terms. The last thing on your mind is taxes, but in order to get your IRS tax refund, you have to file by April 17. If you can, have mom and dad take care of the paperwork. Then, if you wake up some night in a panic wondering, “Where is my tax return?” you’ll know that it’s in good hands. If you’re doing it yourself and have to figure it out on your own, we’ve got the steps you need to take in our Taxes 101 how to guide!
Leave it to the ‘rents
Why should Mom and Dad do your tax return for you?
- You’re single, under age 24, and Mom and Dad are claiming you as a dependent on their tax return because they still support you financially.
- By doing both yours and their return, your parents ensure that they and you get all of the deductions and credits available.
- You have other things to do with your time—like pass your midterms.
Let’s get started
Whoever is doing the tax return, whether it’s you or your parents, you’re going to have to get your paperwork together. Roll up your sleeves and start digging through those piles of papers around the house or dorm. Here’s what you’re looking for:
- W-2s: report earnings and withholding
- 1099-INT, 1099-DIV, 1099-MISC: reports income from interest, dividends and self-employment
- 1098-T: reports tuition and education expenses paid
- 1098-E: reports interest paid on student loans
Do you have to file?
Got all the papers? Now let’s see if you even have to file a return. And wouldn’t that be nice? Generally speaking, you’ll file a return if any of these conditions apply:
- All of your income is from interest, dividends and other non-wage sources and the total is more than $950
- You have income from wages that is more than $5,800
- You made less than $5,800 but you want to get a refund of taxes withheld
Are you a dependent?
Your parents may be able to claim you as a dependent on their tax return. This “exemption” will lower their taxable income by $3,700. If they pay most of your living expenses, they can claim this exemption if:
- You are under age 19 as of December 31 of last year
- You are under age 24 and a full-time student as of December 31 of last year
If your parents claim you as a dependent on their return, you cannot claim yourself on your own return if it turns out you have to file one yourself. Generally speaking, this is a better deal all around because your parents probably have way more income than you do and they can really use the exemption.
Ok, here’s the deal. Whoever gets to take you as a dependent on their tax return gets to deduct the following items too:
- Tuition and fees deduction: deduct up to $4,000 from income (see form 1098-T)
- Student loan interest deduction: deduct up to $2,500 from income (see form 1098-E)
Unfortunately, if your parents have a lot of income to report, these deductions may be reduced in what is called a “phaseout.”
Your education is paying off in more ways than one. Whoever claims you on their return as a dependent can also take the education tax credit based on the amounts that were paid to cover your tuition costs for the year.
Credits are great! They lower your tax bill dollar-for-dollar. Two education tax credits are available, but you can only take one education credit. Calculate both to figure out which one gets you the most money:
- American Opportunity Tax Credit: the maximum credit is $2,000 per year, per student. The student must be at least half-time. This credit only applies to the first four years of college.
- Lifelong Learning Credit: this credit can be used for costs after the first four years of college. It does not require that the student carry a certain number of hours. It also covers graduate school and professional training courses. The maximum credit is $2,000.
You will use the information from Form 1098-T plus your record of other expenses paid for taking courses. The IRS has an information booklet, Publication 970, to help you compute your education tax credit.
Filing your own return
Are you still with me? I know this stuff is crazy, but we’re on the home stretch now. Just a bit more.
When it comes to filing your own return, you might qualify for some credits on your own with these tax breaks:
- Child tax credit: if you have children who live with you and they are under age 17
- Earned income credit: if you have earned income from a job or business, then you might qualify for this refundable credit
The rules on calculating these credits are pretty involved so you’ll have to do a little “homework” to see if you qualify and how much the credit will be. The IRS website has some good tutorials to help you out.
Check with your school to see if they offer a free service to help you fill out the forms. Otherwise, check out free software such as:
Turbo Tax: get free personalized advice; you might qualify for the free edition.
H&R Block: Several versions including one for free.
Whew! Well, that covers what you need to get started! Bet you’d like to have a talk with your folks about now, huh? See, parents can come in pretty handy sometimes. Like at tax time.