Taxes and College Students

June 5, 2012 — 1 Comment

For many college students, it is all too easy to completely ignore the world “taxes” and continue life within an ivory tower.  Taxes are often considered to be a post-college matter that will be of concern when starting the first job. However, there are many tax breaks college students can take advantage of prior to graduating.

In 2011, single (unmarried) taxpayers must file an individual return if their income was at least $9,500. However, taxpayers claimed as dependents on another person’s return and who have unearned income like interest, dividends, annuities, etc. must file a return if their income exceeds $950. If federal taxes have been taken out of this income, an individual may be entitled to a refund from the government. For those on scholarship, a common misconception is that this money is tax-free. This may be partially true, however, the amount of the scholarship that exceeds the direct cost of schooling is fully taxable. This applies for scholarships used for room and board and other living expenses that do not contribute to the traditional costs related to schooling like tuition and fees, books, supplies, etc. Therefore, when filling out a return, the student must report scholarships received that are for non-traditional higher education expenses.

There are currently two education tax credits that individuals are eligible to claim. A qualifying student must claim only one credit per year though. These credits are the American opportunity tax credit (AOTC) and the Lifetime learning tax credit (LLTC). The AOTC is available for the first four years of undergraduate education expenses. The student must be either a half-time or full-time student at an accredited institution in order to be eligible. The credit allows for up to $2500 if expenses exceed $4000. The second credit, LLTC, applies to tuitions and fees only and it lets the eligible student claim a maximum credit of $2000 for $10000+ in expenses.

International students have a different approach to filing taxes with the government. First, the student must figure out whether to file as a resident alien or a nonresident alien. A resident alien is considered to be a U.S. citizens who has a green card or has met the requirements of a substantial presence test. If the international student is filing as a resident alien, then the procedure is the same as if he/she was born a U.S. citizen. However nonresident aliens must file different forms – either the 1040NR or 1040NR-EZ. If filing either of these forms, one cannot claim a standard deduction like on the regular 1040. However, there are tax treaties between certain countries that allow the international student to be taxed a lower rate or exempt of all taxes.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning.  We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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