As graduation looms for this year's seniors, many students are realizing that soon they’re truly going to be living on their own. For a number of them, that means taking their taxes into their own hands for the first time. This can sound like an impossible task if you don’t know where to start.
The first thing you’ll want to know is if your parents are still claiming you as a dependent. If they are, you won’t be able to claim tax credits or deductions. According to the IRS, you parents can claim you as a dependent until you’re 24 if you’re a student.
Next you’ll have several forms to keep track of. These will usually be given to you by your employer or mailed to your house between the start of the new year and April 15th, when taxes are due. First is the W-2 form. This will come from your employer, it determines the amount that will be withheld from your paycheck.
You may or may not have to fill out a 1099 form. This will be dependent (no pun intended) on if you have income that doesn’t come from your employer. Freelancers and contract workers often have to fill these out, you should receive one from whomever you’re doing work for. You’re only required to fill one out if you make over $600 in contract work that year.
Students will also need a 1098-T form, which is your tuition statement. You’ll get this from your university. With it, you’ll report tuition paid, scholarships or grants applied, and other school related expenses. The IRS also has detailed instructions on the 1098-T form here.
Form 8863 is another education based form, this one tells you if you qualify for any education credits. This form doesn’t come from any particular entity, instead it can be found on the IRS’s website. Finally, form 1098-E is needed to deduct interest paid on your student loans. You’ll get it from your lender if you paid over $600 in interest this year.
After you’ve got all the required forms, you can start claiming education based tax credits. You’ll need to do your own research into what you personally qualify for, but some common ones are the American Opportunity Credit or the Lifetime Learning Credit, both of which provide credits based on student expenses, such as textbooks and equipment.
After figuring out your credits, it’s time to start calculating deductions. If you have a qualified student loan you can deduct up to $2,500 in interest. To qualify you need to have paid interest on a qualified loan in the previous year, be legally obligated to pay interest on the loan, you’re not married and you’re making less than $70,000 per year.
Now for the fun part: your tax return. Not everybody will need to fill out a tax return form, use the IRS’s questionnaire to see if you do. If you do, you’ll need to file a 1040 or 1040a form. You can also file form 1040EZ if you can’t claim any education credits.
That wasn’t so hard, was it? Now that you’ve got your taxes in order you’re one step closer to that elusive state of true independence. Now the only thing left to do is the same thing next year… and the year after that… and every year for the rest of your life.