College students may be facing a deadline not imposed by their professors, but by Uncle Sam: April 15, 2014 tax day.
Students risk losing money if they choose not to file an income tax return and could be leaving money on the table in the form of deductions and write-offs for education expenses paid. Many students will be filing taxes for the first time and it can be difficult to know what to include on a return.
Colleges and universities are required to issue Form 1098-T to determine students’ eligibility for education tax credits, according to Internal Revenue Code Section 6050S.
The 1098-Ts will be available to students electronically through their Blackboard accounts
by Jan. 31, according to Lisa Bloyer, fiscal service representative at Central Oregon Community College. The college reports any financial aid received and deducts grants and scholarships from tuition and fees paid, Bloyer explained.
“Certain students will not receive a 1098-T, such as veteran students on the GI-Bill and students whose tuition is paid by other third party sources such as unemployment benefits,” Bloyer said. “If you think you should receive a 1098-T, be sure you have an address and social security number on file with the college.”
For students new to taxes, here are three things that can save money when filing taxes:
1. Establish dependency status
Not being clear on whether or not a student is considered a dependent on a parent’s return can
create complications and possibly result in filing errors for both parties. It may also be more
beneficial for your parents to use your exemption against a higher income. When a child is claimed as a dependent by the parents, the student does not get to take a
personal exemption on their return, explains Peter Bunce, Certified Public Accountant from Callan CPA in Bend.
“Instead, that amount is claimed by your parents as the dependency exemption. That’s
important because generally if you’re not a dependent, you get to claim an exemption for
yourself plus a standard deduction amount.”
In most cases, it makes sense for parents to claim their child as a dependent, especially if the
student does not have the means to support themselves, according to Bunce.
“If you are not providing more than 50 percent of your total support then you are probably not
entitled to take your personal exemption if you’re a college student.”
2. Don’t miss out on education tax benefits
Eligible taxpayers with an income of $80,000 or less or $160,000 or less for married couples filing a joint return can reap the benefits of the American Opportunity Credit. The AOC includes up to $2500 per student for 2013, which covers the first four years of undergraduate education, according to IRS Publication 970. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Students must be enrolled at least half time for at least one term at COCC or OSU-Cascades during the year to qualify.
The Lifetime Learning Credit also allows students and parents to pay for college by claiming a
credit of up to $2000 for qualified education expenses for students at COCC or OSU-Cascades, with no limit on the number of years the credit can be claimed for each student. The IRS states that parents or students can claim either credit for 2013. As with the AOC there is no double benefit, and individuals may not claim expenses for both the same student and same college more than once.
3. Pay dual state taxes
Since many students come to Bend from out of state, dual state taxes could save students money, according to Bunce.
“Say you are a California resident and you go up to Oregon for school–you have to claim 100 percent of your income on your California income tax return because you are a resident, but you are going to get a credit on your California return for taxes that you pay in Oregon on the Oregon sourced income,” Bunce said.
It is important for students to research and thoroughly understand the tax rules in both states,
because state rules can vary drastically, Bunce said.
“[Students should] see if they have a tax professional that they work with or see some
tax preparation software that will ask you questions about residing in one state and earning
money in another state that will help to guide you,” Bunce said.
It is important to note that educational tax credits do not count against a student or family
when calculating a student’s financial aid and expected family contribution, according to Bunce.
“If they pay a tax preparer, if they buy software or do it online with tax preparation [programs],
they can deduct that,” Bunce said. “If they’re hunting for a job, the cost of job hunting is a
deductible; money they paid for travel, for resume software…and anything over 7.5 percent of their income can be deducted for medical expenses.”
Paul Ericson is an accounting student at COCC and a certified tax preparer.