College Students and Taxes

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It is that time of year when two things are sure – tax returns need to be filed and most college students are broke or in need of money for spring break. After preparing the tax return for my children, and while helping supervise the Beta Alpha Psi’s WhiTax program on campus I thought the following items might be of interest to student tax filers.

  1. Make sure that you check the box that your parents can claim you. Unless you are emancipated from your parents, you are a dependent on your parent’s tax return. This changes the amount of the standard deduction and exemption on your return. If you fail to check the box, and file your tax return first, your parents won’t be able to file their return until you have amended yours.
  2. Use electronic filing options. Electronic filing is faster for the collection of your refund than paper filing. Most tax programs offer this free as does the IRS. In addition, providing your routing and account number directly deposits the refund into your account generally in five to 10 days, which is much faster than the one to two months, if you file using paper forms.
  3. Savings Bond interest may not be taxable. Many grandparents like to give U.S. savings bonds, series EE to their grandchildren as gifts. These bonds grow tax deferred until the bond is cashed. Once cashed the interest is taxable for federal purposes but not State income tax purposes.  There is an exclusion allowed for series EE bond interest, if the proceeds are used for education purposes. There is a myriad of rules that relate to this exclusion, such as the bond must be registered in the student’s name, the purchaser had to be over 24 years old, and there are adjusted gross income and dependent rules, but it is something to consider.
  4. Don’t forget to include your state(s). Many students live, work, intern and go to school in different places. Wherever you earn the income you have to generally pay tax to that state (unless you worked in a state with no personal income tax, such as Texas and Florida). In addition, an allocation has to occur between money earned in your resident state (usually where your parents live) and where you earned the funds. These kinds of complexities are usually beyond the college student’s ability and might require the assistance of a professional tax preparer.
  5. When you graduate, you may be a dependent of your parents. Many students upon graduation need a little time to find the “right job,” so they live at home for a few months before they find an opportunity. The dependent rules will allow your parents to claim you on their return for the year you graduate. However, a comparison should be performed to see who gets the bigger benefit from the dependent deduction. If you make over $4,050, you usually cannot be claimed by your parents in the year you graduate.
  6. Education credits belong to your parents. The rules surrounding education credits are vast and complex and quite frankly most students don’t need to worry about them because their parents are the ones who reap the benefits. Make sure you provide your 1098-T to your parents for their income tax preparation. Quite often this form is on your school’s financial aid website and available for download. However, in the year your graduate, if you claim yourself and not as a dependent of your parents, then you are eligible for the education credits.
  7. Make sure you have all your documents. Now that you are looking for money, make sure that you have all your tax forms, W-2’s, 1099’s, 1098-T’s and be careful to double check your work. Common mistakes, such as incorrect social security numbers, misspellings of names, or the failure to include an income item in your return (IRS matches these items with their computers) will delay your refund and potentially your Spring Break fun!
  8. Start early. The earlier you start, the quicker your refund usually gets back to you.
  9. Seek help when you are stuck. There are many AARP, VITA and other services on most college campuses to assist you with your return.
  10. You can always ask mom and dad for a refund anticipation Loan. Many tax services provide what is called a refund anticipation check (formerly loan), where the preparer will partner with an institution (not usually a bank) and provide you a percentage of your total expected refund upon the filing, while you turn over the entire refund to the lender. Ask mom and dad for a loan to be paid back with your refund rather than take this option, as it is usually quite expensive.
John Petosa

John Petosa

Professor of Practice John J. Petosa ’95 JD is a licensed CPA and attorney who currently serves as the CFO and general counsel of a food distributor in Syracuse. He has a private accounting and legal practice that focusses on tax preparation, tax representation before the IRS and New York state, real estate law, business law and estates and trusts. Petosa is also a member of the board of directors of Geddes Federal Savings and Loan Association, a local bank. He was recently elected as a town justice in Camillus.
John Petosa

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