A College Student's Guide on Tax Filing
Whether you’re a college freshman or a graduating senior, knowing how to file your taxes can be a small personal achievement. It’s not too hard, but not many people teach how to do it properly. Being a college student presents several financial challenges; filing taxes properly can save you a lot of time and money.
Accurately reporting your taxes and paying on time is everyone’s responsibility. In this guide, we’ll provide important financial tips that every college student needs to properly file their taxes and take advantage of special tax benefits, deductions, and tax credits.
1. Know Your Tax Bracket
Before you start paying taxes, you first need to know how much you earn and which tax bracket you belong to. A tax bracket specifies the percentage of taxable income that you have to pay in taxes. This changes every year, with those earning $9,876 to $40,125 in 2020 falling to the 12% tax bracket.
The United States follows a progressive tax system, which means it follows a marginal tax rate. Depending on how much you earn, your first $40,125 in 2020 will only be charged 12% in taxes, with anything in excess, until $85,525 in 2020, charged for the 22% tax bracket.
If you’re confused or unsure what tax bracket you fall in, it’s best to use a tax planning tool to automate the entire process. You would only need to punch in the numbers, and it should be able to help you figure out where you fall. Knowing your tax bracket can save you a good chunk of money as you enter into the workforce.
2. Know Your Classification
Another crucial detail that you need to consider is your current tax classification. For college students, they can either have a dependent or independent status, as well as employee or independent contractor status. These will help dictate specific benefits and exemptions that only certain classifications confer.
For example, if students earn less than $10,400 a year and aren’t married, they don’t have to file their taxes. Then again, filing taxes can help them get money overpaid on their taxes as a refund. Students also count as dependents if a guardian provides at least 50% of their costs while they’re in college, up to the age of 24.
Most college students are classified as independent contractors when they work, especially if they take freelance jobs during the early stages of their careers. Those classified as employees will have their employers automatically withhold some money and send it to the IRS. Independent contractors would need to file taxes on their own.
3. Have Your Tax Documents Ready
Students would need several quick essentials to start filing their taxes. These will include:
- Government ID, usually a driver’s license or a passport
- Social Security Number
- W-2 earnings statement from all employers, mailed on or before the end of January
- Federal and state tax returns, if applicable
You would need to fill out a W-4 form for those classified as employees before you begin your job. The W-4 form will determine how much is held back from your paycheck by your employer. As you prepare for filing, you would also need to prepare tax-related paperwork throughout the entire year.
Freelancers would need to file a Form 1099-NEC that details their earnings. 1099-DIV and 1099-INT are also something to look out for if you have investments or interests accrued over time. 1098-E will also be available if you have student loan interest paid and a Form 1098-T will show how much you paid for tuition.
Keep receipts from charitable donations, medical bills, work expenses, and other documents that can lead to tax credits. Keep statements from student loans too, as well as any grants and fellowships. Keep records for at least the next three years to ensure you get the right credits you deserve.
4. Look For Tax Credits and Deductibles
It’s essential to get a sense of the types of credits and deductions you can be eligible for. Ensure that you can pull together the proper documentation to support your claims.
For starters, you can deduct up to $2500 in interest payments for your student loan interests. You can also make charitable donations and deduct these into your taxes. Freelance expenses are also tax-deductible as a form of work-related expense.
Tuition fees deduction can net you a deduction of up to $4000, while the American opportunity credit can net you up to $2500 in extra credits. If you get financial aid like scholarships and FAFSA student aid, those are taxable too. It’s best to visit the IRS website to see what other credits you qualify for.
5. Prepare For Filing
Remember that the national tax deadline is usually around April 15. If you receive your tax documents by around January or February, that gives you two to three months to prepare your tax returns. Plan the date and time that you’ll start your return and ensure that you complete them as early as you can.
Preparing your taxes earlier rather than later gives you several benefits. For starters, this affords you a session or two of preparation, just in case you need more documents to support your tax claims. The early filing also helps you prevent tax-related identity theft and enables you to get your refunds early.
If you think you need some extra time to file, you can ask for an extension that will give you an October date, which means an additional six months of filing. If you owe money to the government, you still need to pay your entire liability by April 15 to prevent any penalties and interests.
Decide how to file your tax returns. You can use several ways to file, including IRS’ free tax prep software, IRS online forms, premium tax prep software, or even a tax preparer like an accounting firm.
The Bottom Line
Filing taxes is not as hard as people set it out, but the proper knowledge can give you some advantage. It can help you get more deductions on your taxes and get you more refunds as a college student. Follow the steps above, and you should be able to navigate the complicated tax routes out there.