A College Student's Guide To Taxes

By Elana Goodwin on April 14, 2016

This article is brought to you by Kaplan, the leader in test prep for over 90 standardized tests, including the GRE, GMAT, LSAT, and MCAT.

Filing taxes is a big part of being an adult — and even though you may still be in college, the IRS may consider you an adult; meaning, you may have to file your own taxes. While doing so may seem daunting, there are probably resources available to you through your college to make the process easier. In any case, here’s a student guide to taxes to inform you of some important facts you should know before doing your taxes.

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Figure Out If You’re A Dependent. You may think that because you live in a dorm or apartment and not at home, are responsible for doing your own grocery shopping, laundry, and errands, and have a job at school that you’re independent. But when it comes to taxes, dependency means something else. Make sure to talk to your parents to find out if they’re claiming you as a dependent as it will affect how you file your taxes.

To be classified as a dependent, you must be a U.S. citizen or resident of the U.S., Canada, or Mexico, and be a full-time student under the age of 24. At least half of your financial support must come from the family member who’s claiming you as a dependent. Even if you are a dependent, you can still file taxes, but you’ll have to indicate someone else is claiming you as a dependent on your tax forms. As a dependent, you can’t claim any credits or deductions that your parents are already claiming for you on their tax forms.

Figure Out What’s Taxable. Most scholarships aren’t taxable, as long as you are using that money for appropriate educational expenses, such as tuition, fees, textbooks, etc. If a scholarship is covering room and board or being used for it, it’s not exempt from taxes, which means it qualifies as taxable income and you may have to pay income tax on it if you’re using it for purposes that make it ineligible.

Additionally, if you were offered work-study or have a job while in college, you’re not qualified as exempt and will have to file a tax return, even if the money earned from those positions is being used for educational expenses.

Figure Out What You Can Deduct. If your parents are filing their taxes with you as a dependent, they may be able to save money by claiming certain credits. The first one you may qualify for is the American Opportunity Credit, which is available to you for the first four years of your college education. It provides a break of up to $2,500 on the first $4,000 spent on educational costs that year. The first $2,000 spent on tuition, fees, books, etc. is 100 percent covered by the credit, and then it will give you 25 percent of the next $2,000 back, meaning your maximum credit will be $2,500. You must be enrolled at least half-time in a degree or certificate program to qualify for the credit. Students can claim 40 percent of the credit as a refundable tax credit, so even if you’re not at all liable for taxes, you may be able to get back a refund of up to $1,000 from the IRS.

If you’re not eligible for the American Opportunity Credit, the Lifetime Learning Credit may be a good alternative. It will pay 20 percent on up to $10,000 in eligible expenses each year, which means you could get a credit of up to $2,000 annually. You can’t use both credits in the same year, but the AOC can be used for your first four years of undergrad, and the LLC can then be used for any additional undergrad years, grad school, and other educational purposes. Both credits have some restrictions on them which depend on what you or your parents’ adjusted gross income is, so check to see if you qualify before claiming.

If you’ve started to pay back your student loans, you are also able to deduct up to $2,500 in interest against your taxable income, which could save you money.

Figure Out What Tax Forms You Need. Tax forms may be sent electronically or in the mail, so keep on eye out for these documents. If you have a job, you can expect a W-2, which would be from your employer and detail any taxes that were withheld from your paycheck.

As a student, you should receive a 1098-T, which is a tuition statement from your college that contains information you’ll need to claim education credits. If you want to see if you qualify for education credits, you’ll need the 8863 Form. Lastly, if you’ve paid any interest on a student loan during the tax year, you’ll need a 1098-E.

The deadline to file your tax return is April 15, but you can get an extension if necessary. However, if you can get your forms and other documentation turned in and filed before then, it’s one less thing you’ll have hanging over your head along with class, tests, etc. And once you’ve filed, you won’t have to deal with taxes again until next year!

Learn more about Kaplan’s test prep options and start building the confidence you need for Test Day.

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