How to Be Smart with Finance at Tax time

<div dir="ltr" style="text-align: left;" trbidi="on"> <div style="text-align: center;"> <b><span style="font-family: Arial, Helvetica, sans-serif;">How to Be Smart with Finance at Tax time</span></b></div> <div style="text-align: center;"> <b><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></b></div> <div class="separator" style="clear: both; text-align: center;"> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMO0VgdIOUJcSxJ3crGKdrUCbmADAaP5Q9iCEoDUGjwrnuccT4BVo8OW7xSRzwbOUVgPlG-Hv3ICJf1tehjD9CuapdBDPtisJnlMLjY7X4-XesAH0c9-WTChccgOgUSkaLtnfBWviUJFQc/s1600/tax.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="171" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMO0VgdIOUJcSxJ3crGKdrUCbmADAaP5Q9iCEoDUGjwrnuccT4BVo8OW7xSRzwbOUVgPlG-Hv3ICJf1tehjD9CuapdBDPtisJnlMLjY7X4-XesAH0c9-WTChccgOgUSkaLtnfBWviUJFQc/s320/tax.jpg" width="320" /></a></div> <div style="text-align: center;"> <b><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></b></div> <div style="text-align: center;"> <b><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></b></div> <div style="text-align: center;"> <span style="font-family: Arial, Helvetica, sans-serif;">It's never smart to pay more taxes than you're legally required to, but to avoid doing so you need to know a little bit about the provisions of the tax laws that affect you. If you're a student or the parent of a student, there are special tax benefits you may be able to take advantage of to reduce your tax burden and put some money back in your pocket.</span></div> <span style="font-family: Arial, Helvetica, sans-serif;"><br /></span> <br /> <ol style="text-align: left;"> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're unmarried and your parents (or someone else) claim you as a dependent, you have to file a tax return if you have earned income (wages, tips, taxable scholarship and fellowship grants) of more than $4,750, unearned income (interest, dividends, capital gains) of more than $750, or if your gross income is more than $750 and exceeds your earned income by more than $250. If you worked at all during the year and had taxes withheld, file a tax return even if your income was less than $4,750. You should get back everything you paid in. Depending on how much you worked, it could be a nice chunk of change, but even if it's only a few bucks, it's yours.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you find income tax returns intimidating, contact your school's business department and ask about tax assistance from accounting students, or call your local IRS office for free assistance. Call early, because the closer you get to the April 15 filing deadline, the longer it will take to get help.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">You may be able to deduct up to $2,500 in interest expense you paid on student loans used for tuition, as long as the federal government didn't subsidize the loans. Subsidized loans are those that the federal government pays the interest on while you're in school. Be sure to use form 1040 or 1040A to qualify for the interest deduction (not form 1040EZ).</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Check with your parents to see if they plan to claim you as a dependent on their tax return. They're entitled to do so if they pay at least half of your expenses; however, if they claim you and you also claim yourself, you'll be hearing from the IRS. Save yourself the grief by communicating with your parents about this.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Besides the issue of whether your parents claim you on their tax return or you claim yourself, there are other tax issues to coordinate with your parents. Because they're in a higher tax bracket, they'll benefit more from the deductions and credits that may be available to you. If that's the case, taking those yourself would be shortsighted. Why save hundreds of dollars when you could save thousands?</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If your parents claim you as a dependent on their tax return, they receive any tax credit or deduction you may be eligible for; if nobody claims you on their return, you can take the credit or deduction yourself. Make a deal with your parents to let them take the credit but slip you some of the savings in cash.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're covered as a dependent on your parents' health insurance policy, you could be risking your eligibility if you claim yourself on your income tax return. You can't be your parents' dependent for insurance purposes and be independent for tax purposes.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Uncle Sam has provided three education tax credits or deductions: the Hope Scholarship, the Lifetime Learning Credit, and the Higher Education Expenses Deduction. Either you or your parents can take one of them, so read up about them so you make the choice that will save you or your parents the most money.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're eligible for the Hope Scholarship Credit, you can take a credit of up to $1,500 against your income taxes (or your parents' income taxes) for the first two years of postsecondary education (college or vocational school). You'd have to pay for at least $2,000 of qualifying education expenses with money from an account other than a Coverdell, 529 savings plan, or prepaid tuition plan, and your income (or your parents' income) must be below the threshold. See the IRS website for details.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're eligible for the Lifetime Learning Credit, you can write off 20 percent of your tuition and fees (up to $2,000) for undergraduate, graduate, and professional degree courses. To claim the full Lifetime Learning Credit on your income tax return, you'd have to pay for at least $10,000 of qualifying education expenses with money from an account other than a Coverdell, 529 savings plan, or prepaid tuition plan. Your income (or your parents' income) must be below the threshold. People of all ages can qualify for this credit.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">You or your parents can claim either the Hope Scholarship Credit or the Lifetime Learning Credit, but not both. If necessary, consult a tax expert to find out which one will benefit you or your parents most.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">In 2004 and 2005, if your adjusted gross income is under $65,000 (for singles) and $130,000 (for married filing jointly), you can claim your actual tuition and fees up to $4,000 under the Higher Education Expenses Deduction as long as you're enrolled in an accredited public, private, or proprietary institution above the high school level. If your income is higher than these limits, but less than $80,000 (for singles) and $160,000 (for married filing jointly), you can deduct up to $2,000.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">To claim the Higher Education Expenses Deduction, include the total you paid for tuition and other eligible costs, up to $3,000 (in 2004) on the bottom of page 1 of your form 1040 Income Tax Return. The deduction will actually depend on your tax bracket, so your parents would probably net more of a benefit than you would, if they can claim you as a dependent.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you qualify for an education tax credit or deduction, make sure you choose the one that will put the most cash back in your pocket. A tax deduction reduces the income your taxes are calculated on, but a tax credit reduces your actual tax. To help you determine your eligibility for these tax deductions and credits so you can chose the one that saves you the most money, see IRS Publication 970: Tax Benefits for Higher Education.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're still your parent's dependent for tax purposes, you're probably a legal resident of your home state, not your school's state. Make sure you know your legal residency, because that's where you'll have to file your state income tax return. If you file in the wrong state, you may end up owing taxes and having to go through the hassle of correcting and refiling tax returns.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Keep track of where your tuition money comes from, for tax purposes. If you take a deduction or credit on your tax return for education expenses, you can't count expenses that were paid for with money from a 529 account or Coverdell education savings account, because these accounts are already tax-free. If your tuition expenses exceed the amount paid from these accounts, you can claim the excess.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Know what tax benefits are available to you for education expenses. Order Publication 4: Student's Guide, Publication 508: Educational Expenses 508, and Publication 520: Scholarships and Fellowships free from the IRS and educate yourself about how to take advantage of education-related tax breaks.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're legally independent from your parents (meaning you cannot be claimed as their dependent) and earn less than the income limit, you may qualify for the Earned Income Credit, a tax credit you can receive in your income tax refund or in your paycheck on a weekto-week basis. Check IRS Publication 596 to see if you're eligible.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Don't overpay your taxes by claiming grants and loans as income unnecessarily. If a grant paid for room and board, it's taxable and you'll have to claim it as income on your tax return, but other grants and loans are generally not taxable. Read the fine print, and consult a tax expert if necessary.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">If you're in a work-study program that provides a break on tuition costs, or if you work in exchange for other financial aid instead of a paycheck, the benefit to you is considered income. You'll have to claim it as income and pay taxes on it when you file your tax return. If you receive a paycheck, the income will be reported on your W-2 and taxes will be withheld as you go, so you won't have to make any adjustments on your tax return.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Take advantage of free electronic income tax return filing services. The IRS website has a list of providers and a description of who qualifies. Most students qualify for free use of the online software and the filing fee.</span></li> <li><span style="font-family: Arial, Helvetica, sans-serif;">Don't fall for income tax refund loans, which allow you to receive an immediate short-term loan in the amount of your income tax refund, for a hefty fee. These loans typically speed up your refund by only two weeks. You can achieve the same result yourself just by filing electronically and having your refund deposited directly into your bank account.</span></li> </ol> </div>

How to Be Smart with Finance at Tax time

How to Be Smart with Finance at Tax time It's never smart to pay more taxes than you're legally required to, but to avoi...

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