This post was updated March 22 at 1:34 p.m.
It’s no secret that finances are often left to a student’s own devices: stocks, bonds, investing, assets – what do all these terms mean? Bruin Bucks tackles the confusing parts of personal finance they don’t teach you in school.
It’s tax season, Bruins, and that means it’s time to figure out what on Earth a 1040 form is.
Learning to file a tax return can be a little like doing your own laundry for the first time. At first, sorting clothes by color, fabric type and care instructions can be overwhelming. Every article of clothing has individual requirements. Similarly, forms like the W-2, 1099 and 1098-T seem like they’re designed just to confuse you.
But no need to fear. With The Quad’s help, tax returns will become just as easy as doing your laundry. No previous experience required.
First of all, what are tax returns? A tax return is a way of legally documenting your income and expenses. It also helps you determine your tax liability, which is the amount of tax debt owed to the Internal Revenue Service.
The first step in navigating tax return season is determining whether or not you need to file. The key elements in answering this question rely on your age, income and filing status.
For college students, your filing status most likely falls into the categories of single and under the age of 65. If these selections apply to you and your income was more than $12,000 in 2019, you must file a tax return.
However, it’s important to remember that even if you made less than $12,000, you should file a tax return if you want to get your withholdings back. However, tax returns are not legally required for those who made under $12,000 last year. For further clarification, the IRS has a brief quiz to determine your filing status.
If you are required to file, there are a few forms that are relevant for college students: W-2, 1099, 1040, 1098-T and 1098-E.
Whether you worked full- or part-time, you can expect a W-2 form in the mail from an employer. The IRS requires employers to send you a hard copy of this form by Jan. 31. A W-2 includes details about the amount of money you earned as well as the amount of income tax withheld from your paychecks. Similarly, a 1099 form is a similar form for income from freelance work, such as driving for Uber or Postmates.
From there, the information on these forms is used to fill out a 1040 tax form to report your earned income to the IRS, thereby determining how much you owe the federal government in taxes. If California is your state of residence, you’ll also need to send your annual earnings to the State of California Franchise Tax Board to pay personal income taxes. For those who are tech-savvy, you can receive and file these tax forms completely online.
Before you file, though, you’ll want to find out if you are eligible for tax deductions and credits.
Tax deductions are subtractions from a person’s taxable income which lowers their tax liability. Common deductions include philanthropic efforts such as charitable donations or community service. You can also receive a tax deduction by opening a retirement savings account such as an IRA or Roth IRA. Tax credits are similar to deductions in that they minimize your tax liability. Credits are given if you care for a dependent such as a child or senior, as well as education-related payments.
Tax deductions and credits should both be included on your 1040 tax form. However, tax deductions are itemized, or presented as a list of individual items, in Schedule A, while tax credits are included under Schedule 3.
Now, this is where the 1098-T and 1098-E come into play since the aforementioned educational expenses are often eligible for tax credits. The 1098-T tracks expenses paid to any institution for higher education such as a community college or university and 1098-E records interest payments on student loans. For more information on filling out tuition-related tax paperwork, TurboTax has a helpful guide.
After throwing your clothes in the drier, they come out feeling all warm and snuggly: a reward for all your hard work. After completing copious amounts of tax forms, you may also receive a tax refund – that’s money back in your pocket.
To receive any sort of refund, you first need to submit your tax return on time. Most federal, state and local tax returns are due April 15 every year unless that date falls on a weekend or national holiday. From there, filers who overpaid on their taxes can expect to get a tax refund from the state government, federal government or both.
Because of the spread of COVID-19, United States Secretary of the Treasury Steven Mnuchin announced the April 15 tax deadline will be extended by 90 days. Originally, California extended its tax return deadline by 60 days but then later also extended it by 90 days.
According to the IRS, most tax refunds are delivered within 21 days of filing. For reference, the average tax refund last year was around $3,000 for most people – so every bit counts.
For beginners interested in saving time and money, there is an ample amount of online tax return resources right at your fingertips. Software services include TurboTax, H&R Block, TaxAct and Credit Karma.
If you need help with your taxes and choose to seek assistance from a professional, it’s important to choose someone you trust. This person will have access to your financial records and highly sensitive information, including your Social Security number.
While filing taxes can be tedious, it’s something you’ll likely have to do every year if you live in the U.S. and work after graduation. Just like the pile of laundry sitting in your hamper, taxes need to get done.
Whether it’s sorting colors and fabrics or W-2s and 1040s, filing taxes is all part of “adulting,” and most of us need to learn how to do it sooner or later. For further details or clarification, students can consult the IRS website.
