Navigating Your First Tax Season: A Guide for College Students

If you did a summer internship last year, you may have noticed that your actual paychecks seemed much lower than what the job posting promised. This is because it is assumed that you are working at that income for the whole year and an amount will be deducted from your paycheck for paying taxes later. If that is one of the only sources of income you had last year, you may be able to recover thousands of dollars by filing your taxes this year.?

Understanding Your Filing Status: Independent vs. Dependent

The first step in your tax journey is determining your filing status, which significantly impacts your tax obligations and potential refunds. Many college students are claimed as dependents on their parent's tax returns, which can limit the ability to claim certain deductions and credits. If you're providing more than half of your financial support, you might qualify to file as an independent, potentially unlocking a range of tax benefits.

Key Considerations:

• Support Test: To file as independent, ensure you're covering more than half of your expenses, including tuition, housing, and living costs.
• Benefits: Filing independently can make you eligible for higher standard deductions and various tax credits.
• Ask your parents if they are claiming you as a dependent on their tax return before proceeding to file your own.

Maximizing Educational Tax Credits

For those paying for college, the IRS offers educational tax credits that can reduce the amount of tax you owe, or increase your refund.

Key Credits Include:

• American Opportunity Tax Credit (AOTC): Potentially worth up to $2,500 per eligible student for the first four years of college.
• Lifetime Learning Credit (LLC): Offers up to $2,000 per tax return for tuition and fees, available for all years of postsecondary education and for courses to acquire or improve job skills.

To claim these credits, you'll need Form 1098-T from your institution, which outlines your tuition expenses. You can typically find this form in your school’s financial aid or payments portal.?

Don’t Wait Till April 15th to File!

Filing early can have several advantages:

• Faster Refunds: The sooner you file, the quicker you'll receive any refunds owed to you.
• Extra Time for Payment: If you owe taxes, filing early gives you more time to arrange payments before the deadline.

Choosing the Right Filing Software

For first-time filers, navigating tax laws can be daunting. Tax filing software simplifies this process by guiding you through each step, ensuring you don't miss out on deductions or credits. Many providers offer free versions for simple tax situations, ideal for students.

Recommended Software:

• IRS Free File: If your income is below a certain threshold, you may qualify for free filing through the IRS Free File program.
• TurboTax: Known for its user-friendly interface, offering free and paid versions.
• H&R Block: Provides both online and in-person filing options, catering to various needs and preferences.

How Do Taxes Work?

In the U.S., taxes are levied on income, including wages from part-time jobs, internships, and any freelance work. Your employer withholds a portion of your earnings for taxes, reflected in your W-2 form. If you are paid through a 1099 form, most often the case for contract or gig work, it will often be the case that there are no automatic deductions from your paycheck and you may be on the hook for additional taxes when you file.?

Timelines for tax documents:

• Employers are required to send you your tax forms for the previous year by 1/31 of the following year, so for 2023, you should have received your documents by mail or email already.

Starting Your Retirement Savings Early

Even as a student, it's never too early to think about retirement savings. Contributions to a Roth IRA, for example, are made with after-tax dollars, allowing your investments to grow tax-free. Especially if you are planning to go into a high-income career that may pay over the contribution limit of $153k/year, you will want to make contributions early on in your college career while you are still eligible.?

Benefits of Roth IRA:

• Tax-Free Growth: Withdrawals in retirement are tax-free.
• Contribution limit for 2023: $6,500 of post-tax earnings before April 15th
• Flexibility: Contributions (but not earnings) can be withdrawn without penalty, offering some financial flexibility.

Brokerage Apps:

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