If you're a college student, income taxes are probably pretty low on the list of things you look forward to doing. But, despite having a bad reputation for being confusing, time-consuming and frequently wrong, filing your taxes can be an easier task than you might think. The trick is to follow a few steps to success. Here is a checklist for any student facing tax season.
Check With Your Parents
Step one for most college students is to find out if your parents plan to claim you as a dependent. Being claimed as a dependent usually depends on how much you earn, your age or marital status and who is paying the majority of your living expenses. Why does it matter? Because not only does it reduce the taxes of the person claiming you, but it also means that they get to claim any education credits available.
If you're unsure whether you should be claiming yourself rather than letting your parents do so, you can find help at the IRS website. It may also be more advantageous for your parents to claim the tax benefits and possibly to share the money saved as a family. The important part is that you all understand who is claiming the dependency so you can move forward with your taxes and avoid amendments.
Collect Your Paperwork
As a young person, you likely don't have a lot of paperwork to collect for taxes. If you work, you should receive a Form W-2 from each employer or a Form 1099 from anyone you did subcontract work for. If you haven't received these forms by mid-February, you should contact the payers to get copies.
You will also need Form 1098-T from your school in order to claim education credits. A few students may have additional forms, including student loan interest statements, Forms 1099-B or similar investment documents, and miscellaneous income reported on Form 1099-MISC.
Wait until you have all the necessary documents before filing or the IRS will probably send you a letter and possibly charge interest for under-reporting.
Start with the EZ
If your parent is claiming you as a dependent, you can likely use the simplest income tax form -- Form 1099-EZ. This one page form is easy to fill out by hand and can be done in less than an hour. Grab a cup of coffee and your Forms W-2 or 1099 and follow the simple instructions. Sign it and buy a stamp. You're done!
If you will be claiming yourself, are married or are eligible to claim education credits, you can still often use a simplified form -- Form 1099A. This is a two page form with more (but still limited) options that can usually be filled out on your own. If claiming credits, you can find helpful sections in the IRS website on things like how to figure education credits and what to do if you didn't have insurance coverage. You're a smart college student, so don't underestimate your ability to understand your own taxes.
Get Help When Needed
If your tax situation is complex enough that neither of these simplified forms is right for you, it's probably time to seek out professional assistance. Some universities offer free tax preparation assistance for students, so look into these first. Because of high demand, though, you may find that there's a long wait or limited hours. In this case, you may want to hire a professional tax preparer like Rainbow Tax Service Inc to deal with things like reconciling insurance purchased through the marketplace, handling unusual income sources, reporting investment income and dividing income between two different states.
By following these 4 basic steps, you can tackle your income taxes with more confidence. Armed with knowledge and a plan, you'll feel more in control of your finances and feel less stress about this annual American ritual.