A dozen tax tips for
Also keep in mind that the
available education tax credits will wipe out taxes that you owe, but they won't
generate a refund. If you're not making a lot of money and don't owe any taxes,
these credits can't help you. And the value of a deduction (for example, the higher
education expenses deduction) increases with your tax load, making it much more
valuable to someone in the 35 percent bracket (your folks) than someone in the
15 percent bracket (you). So unless you expect to owe a bundle, chances are your
parents will get more out of a credit or deduction than you will.
one family's innovative solution. The parents wanted to claim their daughter as
a dependent and were fully qualified to do so, but she was dead set against it.
She had her eye on a $200 refund, while the parents were looking at saving thousands
through a dependent exemption and education tax credit. It all worked out when
the parents took the dependency claim and tax credit and agreed to make a couple
of car payments for the daughter.
"It's not huge dollars,
but it's very complicated," says Doug Stives, CPA and partner in The
Curchin Group. "Do what you're going to do, but understand you want to
coordinate with Mom and Dad."
Don't automatically take the EZ route
File a 1040EZ and the form automatically
assumes you will claim yourself as a dependent, says Stives. But if your parents
make the same claim, both of you will get letters from the IRS. If you've already
filed when you learn your parents plan to claim both you and your education credits,
file a corrected
8. Determine where you
Sounds obvious, right? Not when it comes to taxes. If you're going
to college in one state and spending summers at home in another, you could have
vying for your tax dollars.
The qualifications for residency
"depend on the state," says CPA
Barry Picker, author of "Barry Picker's Guide to Retirement Distribution
Planning." But in some situations, you could be considered a full-time resident
in two places and be required to pay both, he says.
Nail down your tuition money's origin
It could make a difference in
your taxes. For instance, if any of your tuition bill was paid with money from
a 529 account or Coverdell
education savings account, you can't count those expenses in your total education
debt when you try to recoup an education credit or deduction. Since Coverdell
and 529 money accumulates tax-free, the government has already given you a tax
break on those funds.
"Usually, people don't have enough
in a Coverdell or 529 to pay the whole thing, so that's not an issue," says
If your tuition is coming from unsubsidized loans,
you can deduct
up to $2,500 in interest, says Oleson.
And while most financial
planners will tell you that grant and loan money is tax-free, there are always
exceptions. "A grant that includes room and board is technically taxable,"
says Stives. Read the fine print carefully for any money you take so you're prepared
come tax time.
10. Watch your income
If you rely on need-based grants or loans, keep an eye on your income throughout
the year. It's smart to leverage your funds so that you can qualify for every
tax advantage. But you don't want to outfox yourself and lose tuition money, either.
Best bet: Check with your financial aid office before you do anything, such as
taking a summer job or putting stocks in your name, that might affect your scholarship
standing, says Oleson.
Also be wary of claiming yourself as
a dependent if you want to stay on your parents' insurance, says Stives. While
the two things seem unrelated, an insurance company could use your independent
status as justification to deny your health claims, he says.
Be careful with work-study arrangements
These programs are taxable.
Many colleges and universities issue students checks and take the proper withholdings.
If you're not getting a check, make sure that you're putting some money aside
for April 15. And if your school simply gives you a break on tuition in exchange
for your work, your "income" is taxable. Talk to the director of the
program for details.
12. Don't mail
your return the moment you finish it
Come back the next day to double
check your math, make sure you've included, and signed, all the forms and made
a copy for your records. Says Stives, "You always let it cool off overnight,
at least, before you lick that envelope."
Dratch is a freelance writer based in Atlanta.