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College Money Tip #6: Do Your Own Taxes

Tax by Phillip on Flickr Hey, hey you! Yeah you, the one still letting your mom or dad do your taxes for you! Time to cut the apron strings, buddy, and do one of your most important financial tasks.

This year, file your own damn taxes. I know, you don’t want to, and Mom or Dad is happy to do it for you! So why should you do it yourself?

The thing is, you can learn a lot by filing your own tax return: “How much money did I make last year? Really? I made that much? Where did it all go!?!” “They take that much of my money for social security?” And my personal favorite: “Wow, being claimed as a dependent kinda sucks.”

It might be beneficial to try doing your taxes by hand, on the paper forms, but the government is actually discouraging that – they want everyone to e-file this year. That’s your choice, but online tax prep services offer a lot of things you might want to take advantage of. First of all, they offer easy guides as to which tax form(s) you should file. Secondly, they walk you through the whole thing step-by-step.

A lot of tax software has popped up, especially over the last few years. Make sure you pick a company you can trust, because you’ll be giving them a lot of personal information. Also, although the government lets you e-file for free, realize that you still may have to pay to file a state return, or to get additional features in the software you choose.

Keep in mind that if you’re attending college out of state, and you earned money in that state, you may have to file two state returns – one for your home state, and one for the one you worked in. I had to do this when I lived in California for a summer. So pay attention to what filing state returns will cost you.

2010 Tax Prep Costs (for your 2009 taxes)

TurboTax – Offers the Tax Freedom Project: free filing if your Adjusted Gross Income (AGI) is $31,000 or less, or you were active military duty (with an AGI or $57,000 or less), or if you qualify for the Earned Income Credit. Also includes free state filing for AL, AR, AZ, GA, IA, ID, KY, MI, MN, MO, MS, NY, NC, ND, OK, OR, RI, SC, VT, WV. Other state returns cost $9.95.

H&R Block TaxCutFree federal return if your AGI was $57,000 or less (and you’re under 51 years of age). State filing is $9.95.

TaxACT OnlineFree federal return for everyone, no restrictions. State filing is $14.95.

As I said, there are several more, and you should go with a company that you feel comfortable with. With that said, I always do my taxes on two or three different sites. Since reputable sites won’t charge you until you actually file, you can go through the whole process, and compare how your return looks with different services. It can also be a way to avoid mistakes or errors.

Audits

Most people live in the fear of the audit – when the Tax Man comes and says you did your taxes wrong, and now you (presumably) owe your first born child. You may be chosen at random for an audit, or there may be a “red flag” in your return that triggers one.

The best medicine here? An ounce of prevention. Fill out your returns honestly and carefully, and use a dose of over-cautiousness. Take your time, and you’ll be fine. Even if you are audited, it won’t be bad as long as you were honest.

Accountants

None of this is to say that if you have a really complicated return, you shouldn’t use a tax accountant. If you’re one of many college students owning your own business, or you have some other severe complication, go for it.

This also isn’t to say you shouldn’t ask your parents for help and guidance. It’s perfectly fine to ask them to look over your return before you hit the “File My Return” button. Or even to have them sit there and talk you through it – that’s cool, too. It’s about being proactive about your finances, so that you will feel comfortable filing your own taxes for years to come.

Pro Tip: You can also find answers to almost every tax question ever at IRS.gov.

15 responses to “College Money Tip #6: Do Your Own Taxes”

  1. Gloria

    You might check out the IRS Free File Home page of their website: http://irs.gov/efile/article/0,,id=118986,00.html?portlet=4

    Or you can go to the IRS home page irs.gov and click on freefile on the left of the page.

  2. Dreamer

    Another thing I learned while filing my own taxes through college was the different types of deductions and credits you can take. For example you can work through some different scenarios for opening an IRA and putting money away for retirement. Or you can learn about future deductions you may be able to take and instead of just going with the flow and worrying about taxes come January, February of every year you can plan ahead and take actions to be able to take advantage of different tax breaks.

  3. Don

    I always do my own taxes. I had it done the year after I bought my house, thinking it would be more complex. My accountant took all the standard options exactly as I would have, and charged me $100.

    More than that, she didn’t even let me know that I could have recharacterized one of my Roth IRA contributions and slipped under the limit for the Retirement Savings Credit (I missed $400 for that).

    Opportunity cost: $500 total.

    Doing my own taxes has helped me understand exactly how to make my income work out “just right” for taxes. I know precisely how much I want to save before taxes and how much to save after taxes. That’s worth a lot.

  4. Maveth

    My father slapped down the forms when I was 17 and said, “Get to work, your refund, your problem.” Though he sounds like a jerk, he really did me a favor, because every year since then, I’ve done my own return. It’s not at all complicated if you take advantage of Turbo Tax’s e-file. It basically does all the work, you can save your returns as a pdf, and they even file them online. You may pay a bit for tax software, but only if you file. You can always complete the return, copy the final info to your paper form and mail it in for nothing.

  5. Saver Queen

    If you’re on campus, you might be able to find some free help!

    If you do your own taxes, remember everything you can claim – textbooks, rent, equipment/research costs, interest from your student loan, tuition fees – and, if you move out of town to go to school, you can claim all your moving costs!

    Now, if only there was a tax refund for beer…

  6. Ray finnert

    Yeah, it is important to start doing your own taxes right from college. Yeah, I know it is tempting to let mum or dad go through the hassle.
    But hey, if you do not start doing your own taxes, how on earth would you ever learn about money, value of money and more importantly, how to clean up after yourself? I totally agree with you and that you should start doing your own taxes from 17 onwards. Real life is not about your parents doing all the hard work and you living it out like a king in your parents house. Doing your own taxes is a great way to start making some decisions on your own. Yeah, I know that it will be a bit overwhelming at the first go, but give it a shot and believe me, after a few mistakes, you would be able to handle the whole thing all on your own.

  7. Broke Grad Student

    This is the one thing I never took responsibility for during college and grad school, but it’s gonna change this year.

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  9. ESH

    This was probably the hardest thing I thought u would have to do when going away to college – but they have tons of programs out there that aren’t that expensive that can basically do all the work for you, and the TurboTax you mentioned is exactly what I used, ended up being a breeze

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  11. Jolene

    TurboTax cost update: I did mine with TurboTax this year, and the federal return filed for free, but the state one was $19.95 (you have it listed as $9.95 here, or free in some states, including MI. I live in MI, and it wasn’t free. :( )

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  13. Cris

    Had a problem with Turbo Tax a few years ago. A persistant flag came up, and would not go away. I ended up inputting some wrong info in trying to make it go away. Then I had to pay to have a live tax preparer in my neighborhood send in a corrected tax form. I could not get any response from Turbo Tax to clarify the situation. Turbo Tax was not standing behind their product. So I paid $40. to correct an $8. error on top of the charge by Turbo Tax.

  14. RoRo

    I know this was posted some time ago, but I need input for someone who has maybe gone through the same thing I’m about to explain …. Ok, so my dad does not file his taxes until April or later which has already been a problem getting financially cleared with my university. Anyway, he is telling me that it is more beneficial for him to do it, but I’m trying to get my tax refund now. I am also attending college out of state, so would it be wrong to file it here and get my refund now? Then he does his later since he has a copy of my W2′s?