Attending college is a good indicator you’ve grown up. Filing taxes is another real-world wake-up call. If you don’t have a paid job and your parents are claiming you as a dependent, there’s no need to file an income tax return. However, if you have a paying gig regardless if your parents claim you or not, get to know Uncle Sam.
Do you know when to file a tax return, and where? Do you know what deductions and credits you’re eligible to claim? Take our collegiate pop quiz to test your tax filing know-how.
Question #1: If you attend school outside your home state, where do you file your state tax return?
Answer: This is a bit of a trick question. Your federal return should be filed with the IRS based on your permanent address. State returns are a different story. Since Texas has no state income tax, Texas residents don’t file tax returns with the state. Out-of-state working students attending Texas colleges and universities must file state income tax returns in their home state. Texas residents who attend school and work in a state with a state income tax, like Oklahoma, must file a return in their school’s state.
Question #2: Do I have to pay taxes on my scholarships?
Answer: You don’t have to pay taxes if your scholarships are used to cover the cost of tuition and required fees. However, any scholarship money used to pay for room and board, travel, research, and equipment is taxable and should be included with wages even if scholarships aren’t reflected on the W-2 form.
Question #3: Going to college is expensive. Are there any tax breaks to ease the financial burden?
Answer: Besides a diploma, higher education can pay off – in
the form of tax credits. The American Opportunity Tax Credit is good for your first two years of college and can only be claimed twice per student. You must take at least one-half of the courses constituting a normal full-time workload to qualify. The American Opportunity Tax Credit offers up to $1,500 in tax savings.
In addition, the Lifetime Learning Credit is a tax credit available to students, but you must choose between taking either the American Opportunity Tax Credit or the Lifetime Learning Credit. Both cannot be taken by the same student in a single tax year. The Lifetime Learning Credit can be claimed indefinitely for the “professional student” and may total up to $2,000 per year.
Question #4: It’s hard enough keeping up with all my class notes and syllabi, what records do I need to keep for tax purposes?
Answer: Keep all your receipts for tuition and books, complete information on scholarships and other financial aid, as well as transcripts for proof of enrollment. Having organized financial records can help cut the time needed for tax preparation.
Question #5: When is my tax return due?
Answer: Federal returns are due April 15. State filing deadlines vary by state. Unlike your English class, extensions can be granted by the IRS. Check www.irs.gov for extension details.
Question: #6: How much does it cost to file your taxes?
Answer: Millions of eligible taxpayers can use the IRS Free File for no-charge online tax preparation and electronic filing. If you plan to complete and file your own return, visit the IRS Web site for free preparation and electronic filing options.
Need a crash course on income taxes before the April 15 filing deadline? If so, visit www.irs.gov for official tax filing information.