Imagine skipping a day of class, then coming into the next session and seeing a test. You open the packet and see what appears to be gibberish staring back at you. Everyone else around you seems to have a perfect grasp of what’s going on, but you’re just stumbling in the dark.
That can be what the process of preparing your taxes can feel like the first time you do them. You’re given a big pile of paper and expected to sort it out yourself. It’s easy to get overwhelmed.
Before you start to panic, though, take a deep breath. There are a few questions that might make your life much easier. Grab that big stack of paper and ask yourself …
There’s an easy way to short circuit this whole process. If you didn’t make much money last year, you don’t have to file taxes. If your earned income (wages and tips) is less than $6,300 and your unearned income (interest and dividends) is less than $1,050, you probably don’t have to file taxes.
Of course, you might still want to do so. If you had a summer job, your employer took taxes out of your paycheck as though you’d been working all year. You might be able to get a little bit of a refund for your effort.
If your tax situation is relatively simple, you may be eligible to use a form called the 1040-EZ (as in easy). It’s a much more straightforward document. You just enter your wages, your filing status (married or single) and the taxes you’ve already paid. It’s all laid out on your W-2, the form you got in the mail or online from your employer.
The 1040-EZ lives up to its name. It’s one page long. Once you put your name, address and Social Security number on it, you’re about halfway done. You don’t get to claim any tax credits, but there aren’t a lot of tax credits available for college students in any case.
You don’t have to go it alone. If you’re feeling antisocial, you can (and should) use an e-filing service. The IRS has a tool to help you pick the best one. Remember, members of Wasatch Peaks can save up to $15 on TurboTax®!
There may also be tax help available. A program called the Volunteer Income Tax Assistance (VITA) is available on many college campuses. Business students looking to bolster their resumes will frequently volunteer to help with taxes for free. This is especially important if your tax situation is more complicated, like if you’re paying for college on your own or have self-employment income from a side hustle.
Are you stressed about taxes? Tell us about it in the comments, or pop down and help your fellow students out!
I hope you enjoyed the President’s Day holiday. Our kids were out of school on Friday & Monday, so we had a long weekend full of fun times. President’s Day reminds me of tax season. Although IRS technically started accepting tax returns on January 23rd, most of us have not filed because we were waiting for information. Also, some returns weren’t being processed at that time. For example, if you are claiming the refundable portion of the Child Tax Credit or if you are claiming the Earned Income Tax Credit and were receiving a refund, it wouldn’t be paid before February 15th. Now, tax season is definitely here. Unless you are waiting on some K-1s or 1099s, you probably have the forms that you need in order to file your taxes.
I recently attended an 8 hour seminar highlighting the updates for taxes - by the way, that was the short class. The long one was 2 days. Some things in life never change, but tax law isn’t one of those unchangeable things. For this post I’ll mention some of the tax topics that I think the readers here will appreciate. Apply each topic to your situation.
Partnership returns are due on March 15th now, which falls on a Wednesday this year. By the way, whenever a tax filing deadline falls on a weekend, taxes are due on the following Monday. Because April 15th falls on a Saturday and Emancipation day is observed on Monday, April 17th, the tax filing deadline is April 18th this year for individual filers and businesses filing an 1120. (See IRS for more information.)
Tip: If you have some investment accounts, you will want to wait until the final 1099s are sent out. Last year I worked on several tax returns that we thought had the final 1099s, but a few weeks after they were filed, another 1099 was received. Some of these 1099s were not received until mid-March. It is easier, cheaper, and better to wait to file than to amend a return, but returns can be amended. Regardless of when you file, I recommend you prepare the information you’ll need for your return now!
You have until your tax return filing deadline to contribute to your IRA accounts! For most of us, that is April 18th. Each year my husband and I try to reach our $5,500 limit for IRA contributions. Some years we do and some years we don’t even get close, but we aim for it. Having a few extra months helps me. If you haven’t started contributing to an IRA, I recommend you start with a small amount. That’s how we started. How much do you want to contribute before the tax deadline? You need to know this in order to file your taxes. For specifics, check here.
Tip: Always be aware of phase-out amounts. This means that if you earn over certain amounts, the credit or deduction “phases” out until you aren’t allowed any of that benefit. You can look up the specific phase-out amounts for the deduction or credit you may be wondering about. Just because a deduction is generally allowed, doesn’t mean it will be allowed for you. For example, if you are married, the phase-out range for the American Opportunity Tax credit is $160,000-$180,000. This means that as your income reaches $160,000, the credit will ratably be reduced, and if you make over $180,000, it will be gone. I often hear someone say “that is tax deductible” in conversation. I think to myself that it depends on the taxpayer’s income. Student loan interest is tax deductible unless you earn over the phase-out amount. I won’t list all of them here, but you can easily check them on IRS’s website for any deduction or credit that you are considering.
Will you be receiving a huge refund? Emotionally, it feels great to get a large refund. I understand this! I know I’m swimming upstream to suggest that you adjust your withholding, but a large refund means that you are letting the government hold your money. I try to withhold just enough to get a small refund.
Some people tell me that they don’t have the self discipline to save throughout the year so at least that forces them to save. I get that. However, USING your budget will solve this problem, and you can get off that wagon. I’ll get off my budgeting “soapbox” now.
IRS is trying to protect against this. If you want to read more information about possible fraud, click here.
Identity theft is a big problem right now. I personally have a friend who wasn’t able to file her taxes electronically because someone had fraudulently used her social security to file taxes.
This was an important law passed at the end of 2015. Some tax provisions were made permanentsuch as Child Tax Credit, AOTC - American Opportunity Tax Credit, & Tax Free transfer from IRA to charity.
Other tax provisions were extended. For example, the deduction of mortgage insurance premiums was extended through 2016. This is a nice deduction if it applies to you.
The IRS website is a great resource for tax topics. I hope your tax season goes well!
Q: Tax forms have started rolling in and my mailbox looks like a can of alphabet soup exploded in it! What do I need and where do I start?
A: This is a tough time of year for people who don’t like paper. Starting at the end of January and continuing through March, taxpayers start drowning in paper. Sorting out what’s important and finding a place to store it is a big challenge, and it becomes harder if you don’t know what’s what.
Fortunately, it’s easier to tell these forms apart than you might think. There are only a few types of forms you’ll need to deal with, and most of them don’t even need paper. Here are the four most common tax forms you’ll see and what to do with them!
This is the most common informational form you’ll receive. It’s a statement from your employer that contains your yearly wages, how much tax you’ve had withheld and how much you’ve paid (pre-tax) for things like health care premiums. If you have one job, this may be the only major tax form you get.
It’s also one of the most important forms. You’ll want to keep it with other tax documents until it’s time to file your taxes. This information – your yearly earnings and the amount of tax you’ve had withheld – are the most important factors for determining what your tax bill will be (or how big a refund you’ll get).
This is a series of forms identifying income from sources other than a contract job. Most common is the 1099-INT, which lists interest income. You may get one of these from any financial institution where you have an account.
If you freelance or work as a contractor, you’ll probably receive a 1099-MISC. If you received unemployment or another source of government income, you’ll get a 1099-G. If you had debt canceled this year, you’ll get a 1099-C. There are a few other kinds of 1099 forms, but they all do basically the same thing.
You’ll need to hold on to these forms, too. They document income that you haven’t yet paid any taxes on. You’ll need the amounts on these forms when you get ready to file.
These are relatively new forms that deal with health insurance. Form 1095-A is a statement about insurance purchased through a marketplace exchange. 1095-B is for private health insurance. 1095-C is for employer-sponsored health care coverage.
These forms are important if you get a health insurance subsidy through the Affordable Care Act. If not, you can go ahead and put this form into long-term storage. You’ll be asked when you file if you had health insurance all 12 months of the year. The IRS receives a copy of this form to check your work, so you’ll only need it if issues come up regarding your coverage.
Two forms, the 1098 and the 1098-T, report tax deductible expenses. The 1098 form lists mortgage interest and points on your primary residence, while the 1098-T itemizes tuition and other expenses paid to an institution of higher learning. The 1098-T is used in a variety of places, including claiming the Lifetime Learning Credit and the Hope Credit.
Unfortunately, in order to take advantage of deductions relating to mortgage expenses, you’ll need to itemize your deductions. Claiming the deductions listed on the 1098 requires you to forgo the standard deduction, which for most people turns out to be a bad idea. Unless you have a host of other deductions, or you bought or refinanced your home this year, claiming the standard deduction and filing the 1098 away for later will serve you best.
The bad news is you can’t file your taxes and be rid of the whole mess until you get all of your forms together. You’ll need to keep any W-2 forms, 1099 forms and your 1098-T form together until all of them arrive. Get a manila folder or a document envelope to keep them all in the same place. Keep that folder somewhere safe, and as soon as possible, file your taxes so you can put it into storage. Keep your returns for at least 3 years after you file. A paper copy of last year’s tax return in your filing cabinet can make a world of difference!
How do you keep up with the paperwork requirements of your tax return? Have a magical filing system? Share your best organizational strategies with us in the comments!
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