Importance of Keeping Tax Records in College

By Joseph R.

As a college student, you need to be scrupulous with your spending. Between the cost of tuition, books, and the other collegiate must-haves it can be quite the feat keeping track of everything. Up until now, mom and dad may have been keeping a careful eye on your monetary expenses but now it’s time to seize control of your finances. Part of this newfound responsibility includes doing your own taxes. Assuming you work at least part time and are not claimed as a dependent on your parent’s tax returns, you’ll need to file an annual income tax return. At first glance, it may be a heavy load to take in. Just take it step by step and keep the following points in mind.

Tax Credits

There are two main types of education tax credits—one is for getting a degree, and the other one is for enrolling in job enhancing courses. The American Opportunity Tax Credit is intended for the individual getting a four-year college degree at an accredited institution. You can get up to $2,500 in credits on the first $4,000 of qualified expenses (tuition, course materials, etc.). The Lifetime Learning Tax Credit is the other applicable credit which applies to courses that don’t necessarily need to be part of a degree program. These courses are typically ones which will advance your career or help you obtain employment. The big difference between the two credits is the time period in which you can claim it. The former has a 4 year limit, whereas the latter has an indefinite time span (no limit on years claimed).

Receiving a Scholarship?

If you’re funding your education with a scholarship or a tuition assistance program, you’re not required to pay taxes on that money. You do, however, need to keep adequate documentation to show that the money is going towards tuition and fees. If you’re using any of that amount on housing, research, or travel expenses then you are required to document it in the wages category.

Learn the Lingo                                                                     

Learning the language of taxes can be a bit intimidating for a first timer. The official IRS website has a database of tax topics to give you a basic understanding of IRS procedures and filing methods. It’s also the primary place to obtain official documents like Form W-2, 1099-R, C, and A.

Select a State

Did you move away from home to attend college? That’s important to keep in mind when selecting which state to file your tax return. A quick rule of thumb is your federal return should be filed in the state you consider your “permanent address.” State income tax returns are a little different because certain states don’t have a state income tax. The seven states are as follows: Florida, Nevada, Alaska, Texas, Washington, Wyoming, Tennessee, and New Hampshire. Unless you’re permanent address is declared in one of these states you’ll have to file a state income tax return.

If you’re concerned you still don’t have the necessary information to file your taxes, consider seeking the help of a tax expert. Levy & Associates have a variety of guides and resources to help you get the basics down pat. The IRS website is another option available to you at any point. As previously mentioned, they have an index of tax topics, FAQs, and tax forms.