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A dozen tax tips for college students

If you're in college, doing your taxes feels like one more final exam. But there's one big difference. This grade is measured in cash.

With a little research and time, you can ace this test and maybe even earn a nice check in the process. Here are 12 tips to help you over the rough spots and make this tax exam a little easier.

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1. File
Sure, you might make too little money to file, but if you've had money withheld from paychecks, you've got a refund coming. "The most common error is that people don't realize 'it could make a lot of sense for me to file even if I don't have to,'" says Mark Oleson, director of the Financial Counseling Clinic at Iowa State University.

2. Start early
Even if you haven't received your W-2s, your final pay stub will have the pertinent tax information, such as your income and how much was withheld. You also can go online and download state and federal forms you'll need. Taking an advance look at your tax situation will help you know which issues might apply to your return.

Think you might need a little help? It's probably closer than you think and possibly free. Most college accounting departments have students offering free tax help so they can get some practice with real-life returns. If you haven't seen ads around campus, contact the accounting or business department and find out how you can get some advice. The Internal Revenue Service also offers in many communities Volunteer Income Tax Assistance sites where you can go to get help from IRS volunteers, says Oleson.

Remember, though, the closer you get to April 15, the longer the wait for help. Jace Sanders, a financial adviser for Albuquerque-based Essential Financial Planning Inc., still regrets waiting until the last minute the first time he sought on-campus help in college. He stood in line for two hours. But it was worth the time, he says. "They advised me of the Hope Credit."

"The sooner you start, the better off you'll be," advises Oleson. "If you have a tight spring schedule and can't talk to someone for three weeks, saying that on Feb. 1 is a lot different than saying that in April."

3. Give yourself a weekend
No, filling out your forms won't take that long. But if you allow a weekend, you'll have time to take a few breaks when you get tired and still be able to double check the numbers before you mail that return.

Sanders says his first college return took the better part of a weekend. "I got off work Friday, and Monday I was still finishing it up," he says. Even so, he neglected his earned income credit. "And the IRS isn't going to say, 'Here's some extra money you want to take.'"

Oleson recommends you take a leisurely weekend to do your returns. Then take the next week to seek any outside help and ask more questions. Next weekend, check your numbers again and send it.

4. Practice on paper
Even if you're filing electronically, many students find it's more efficient to fill out the paper forms and work out the bugs before they go online to file, says Oleson.

5. Take extra credit
These days, college students (or parents paying college tuition) are getting a little help from the government in the form of credits and deductions. While there are three major ones, students (or their parents) get to select only one per student. And whoever claims the student as a dependent is the one who is eligible for the credit. Pick the one that best suits your family and situation:

  • Hope Scholarship Credit -- Gives you a tax credit for up to 100 percent of your first $1,000 in tuition and fees and up to 50 percent for the second $1,000. The maximum credit is $1,500 and it applies to the first two years of college only.
  • Lifetime Learning Credit -- Gives you a tax credit equal to 20 percent of your tuition and certain related expenses up to $10,000. The credit maximum is $2,000.
  • Higher education expenses deduction -- This deduction could be as much as $4,000 for families that meet earning guidelines. If you make too much (in the IRS's eyes), you'll get a reduced deduction. The downside: Deductions usually give you less bang for your buck than credits. You get to subtract a credit amount from the actual tax you owe, whereas a deduction reduces the income you pay tax on. So in this case, even if you have $4,000 in expenses you can claim on your tax return (at the bottom of page 1 of your Form 1040), in reality this deduction would at most produce a $1,000 reduction in your tax bill if you're in the 25 percent tax bracket.

6. Understand your family's financial situation
Talking to mom and dad about money is almost as difficult as talking to them about sex (and just about as much fun). But you need to know a little about their financial picture to plan who should claim you as a dependent and possibly use your education credit or deduction.

If your parents are paying more than 50 percent of your expenses, they are entitled to list you as a dependent on their taxes.

 
 
-- Updated: Jan. 27, 2005
   

 

 
 

 

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