Are you a student filing taxes? Here's what you need to know

Posted on February 10 2014

When you're a student, filing your taxes is probably one of the last things you want to be thinking about in the middle of a busy semester. However, you should definitely pay attention to your tax return so you can avoid penalties for not filing if you were required to. Also, you want to get the biggest refund possible with the help of tax deductions and tax credits for students. As you get started on your simple tax return with OnePriceTaxes, keep this information in mind to file your return correctly.

Filing may be beneficial even if you aren't required to file: The minimum amount you need to earn to be required to file a tax return is often far above what a college student earns during a typical year. However, this does not mean you should not file. If you earned any money at a job where federal or state income taxes were withheld from your paychecks, you should file a tax return. This is the only way you can claim a tax refund, which you are likely to get if your income was minimal.

Are your parents claiming you as a dependent?: Before you file your own tax return, you need to talk with your parents to find out if they are going to claim you as a dependent on their tax return. If they are paying at least half of your expenses and you meet several other criteria, they are allowed to claim you to help reduce their tax bill. If they claim you as a dependent, you will not be able to claim yourself as an exemption on your tax return and you will not be able to claim several other tax perks that they may be claiming on your behalf.

You may need to file state returns in two states: College students sometimes end up in complicated filing situations when they attend school in a different state from where they live during the summer and other school breaks. Particularly if you earned income in two different states, you may have to file a tax return with each state. You will probably be able to file as a nonresident in one of the states and exclude this income from your resident tax return in the other state, but you will need to look up the filing rules for each state to be sure.

Claim education tax credits or tax deductions: The biggest tax break you should pay attention to as a student is a tax credit or tax deduction for your education expenses. Your school should provide Form 1098-T, which lists the qualifying expenses paid each year. To take the tax break, you must be the one who paid the expenses for either yourself or a dependent. Therefore, if your parents are footing the bill and claiming you as a dependent, they will be the ones who claim the tax credit or tax deduction. There are three options, and you can only use one of them for each student.

  • American Opportunity Credit: This tax credit is for up to $2,500 per year for each of the first four years of postsecondary education in a degree-seeking program. The amount of the credit is 100 percent of the first $2,000 you spent on education expenses, plus 25 percent of the next $2,000 you spent. Plus, the credit is 40% refundable so you can get back up to $1,000, even if you owe no taxes. The credit is phased out if your AGI is between $80,000 and $90,000, or between $160,000 and $180,000 if you're married filing jointly.

  • Lifetime Learning Credit: Graduate students can't take the American Opportunity Credit, but they are still likely to qualify for the Lifetime Learning Credit. This credit is 20% of the first $10,000 you spent on qualifying educational expenses, such as tuition and fees. The maximum amount of the credit is $2,000, and it is not refundable at all. You will only receive a percentage of the credit if your AGI is between $53,000 and $63,000, or between $107,000 and $127,000 if you're married filing jointly.

  • Tuition and Fees Deduction: The last option is to take a tuition and fees deduction of up to $4,000 of tuition and fees you paid. The deduction can reduce your taxable income even if you do not itemize deductions. If your AGI is between $65,000 and $80,000 (or $130,000 and $160,000 if married filing jointly), you can only deduct up to $2,000 of tuition and fees.

List the interest you paid on student loans: If you have already begun repayment on your student loans, you will want to claim the interest you paid as a tax deduction. The student loan interest deduction is what is called an above-the-line deduction, which means you can claim it even if you are not itemizing deductions. Therefore, if you paid interest, there is no reason to not claim it on your tax return! You can deduct up to $2,500 of interest paid each year, but you are not allowed to deduct anything if you are listed as a dependent on someone else's return or if you are married filing separately.

Do you need to list your scholarships and grants as income?: Many students receive thousands of dollars each year in federal, state, and private grants and scholarships. This could mean a big hit come tax time if you have to list these as part of your income for the year. The good news is that, in most cases, grant and scholarship money is not considered to be income for tax purposes. You don't have to list the money as income as long as you are enrolled in a degree program and are using the money for tuition, fees, and course-related expenses like books and supplies that are required for all students in the class to purchase. However, if you use a scholarship or grant to pay for room and board, travel, or non-required equipment like a computer, you will have to include it in your taxable income.

Think of your tax return as yet another assignment to fit into your calendar during the spring semester. This is one where it will often pay to not procrastinate. If you are due a refund, the sooner you submit your tax return, the sooner you will get your refund. You can even enter your checking account information on your return through OnePriceTaxes to get your refund as a direct deposit, which is the fastest method. Get to work on your tax return now and you could be enjoying dinner and a movie in a couple weeks with your refund money!

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