Managing taxes in the real world

With April 15 right around the corner, accountancy department chair Keith Smith has words of wisdom for students filing taxes.

For some undergraduates, parents will prepare students’ returns along with their own, having the students sign the forms when they return home for spring break, Smith says. But, if parents are cutting the ties a bit early, or a student wants to learn how to stay audit-less before graduation, Smith shared his ideas on how to make the process painless and fee-free.

Remember key dates and documents:

Taxes must be filed by April 15, but the sooner taxes are filed, the sooner students will receive their refunds.

W-2’s and 1099’s must be kept handy even after taxes are filed, Smith says. Keep copies of these documents in a safe place.

“If you’re going to deduct any expenses, have proof that you actually paid them in case you get audited,” he says.

Deduct everything you legally can:

Students may be able to deduct interest on student loans, tuition, or education expenses, Smith says.

Of course, each of these tax breaks have requirements, so Smith suggests students look at instructions on the 1040 forms. Smith says tax benefits all have one major thing in common: they “phase out” for individuals with high incomes.

Smith says if parents pay for their child’s expenses, then the parents receive these tax breaks.

Use the Web or IRS to aid in the filing process:

“If the student needs to prepare a tax return, it’s free on the Web,” Smith says, adding that the Internal Revenue Service has a Volunteer Income Tax Assistance Program on its Web site.

This program, Smith says, “offers free tax help to those with low to moderate income who cannot prepare their own tax returns.”

Volunteers are certified and sponsored by different organizations, which provide training to “help prepare basic tax returns in communities across the country,” he says.

TurboTax, a commercial tax software company, provides the same service for simple returns, which includes most returns filed by students and recent graduates, says Smith.

If students do not qualify for free tax help software, the price for software starts at $30. Smith says office supply stores carry the cheapest options.

Owing the government money:

“You file your return on April 15, but you often pay the taxes way before that,” Smith says.

Students can withhold taxes throughout the year by asking their employers to take out a given percent each payroll period.

“You earn $100 but your paycheck is only $70 because your employer withheld $30 of tax. The amount withheld can only be an estimate because you don’t know exactly how much tax you’ll ultimately owe,” Smith says.

Once students submit their tax information, the IRS will send back any refund. If students do not ask their employers – for jobs and even paid internships – to take out a percentage, they will likely owe the government money come Tax Day.

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