1. Education Credits – If you’re no longer being claimed as a dependent, but you’re still in school, pay attention to these credits!
2. Student Loan Interest and Do I Really Need to File? – Once again, if you’re not being claimed as a dependent and you paid student loan interest, there may be a deduction for you. And if you didn’t make a lot last year, you may not need to file… but you also may be eligible for a refund, so you should at least go through the process and see.
3. Moving Expenses – The rules for this are a little wacky, so read this tip carefully to see if it applies to you.
4. Individual Retirement Account (IRA) Deduction – Retirement may seem a million miles away, but contributions now may be tax-deductible, so you could help yourself now and later by making contributions ASAP. (Also, you’ll put compound interest to work for you!)
5. What Paperwork Do I Need In Order to File My Return? – If you haven’t done your taxes yet, this is a good guide to what you’ll need to have in front of you before you start.
6. 401(K) – Just a reminder from me (Stephanie): if your company offers a 401(K) with matching contributions, and you’re not contributing to it, you’re literally saying no to a part of your salary. Do not turn down free money! Sign up today!
7. Your W-4 – What is this strange piece of paper? What are exemptions? Definitely useful info whenever you get a new job. I also wrote about filling out your W-4 in my “Graduating?” series.
8. Renter’s Credit and Take Home Pay – Some states give you a tax credit for renting? I didn’t even know that. Sweet! Also, a reminder that your gross salary is not how much money you’ll get, and a breakdown of the taxes that will be taken out.

All-in-all, some sweet tips from TurboTax. Happy taxes!

Anyone have any additional tax tips to add for the college crowd or recent grads?

Related posts:

1. 20 Year Olds and Finance
2. 18-Year-Olds and Credit Cards: Discussion Continues
3. Early Tax-Bird Special: Free TaxCut Premium

If after my post on taxes yesterday, you’ve decided to mount up and file your taxes ASAP, I don’t blame you! In fact, I may even be able to help.

The nice folks at H&R Block TaxCut also saw my post yesterday, and have given me two coupon codes to giveaway to you guys. The coupon code will get you free TaxCut Premium federal + state + e-file software (digital download). That’s a $45.95 value.

So, if you want to do your taxes early, I’ll help you out and give you one of these nifty coupon codes. Just leave a comment on this entry before midnight, January 31st. I’ll pick two commenters at random and email them the coupon codes. (This, of course, means you’ll have to use a valid email address when you leave your comment.)

Happy taxes!

One entry per person – multiple comments will not increase your chance of winning, so don’t try it.

Related posts:

1. Tax Tips for 18-25 Year-Olds
2. Avoid Income Tax Without Calling Down the Wrath of the IRS
3. Graduating? Calculate Your Tax Withholding

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 TaxCut – Free federal return if your AGI was $57,000 or less (and you’re under 51 years of age). State filing is $9.95.

TaxACT Online – Free 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.

Related posts:

1. Taxes: Done!
2. College Money Tip #7: Do Your Own FAFSA
3. Pay Taxes on Imaginary Money!

But those of us that are young and bright-eyed don’t have a lot we can do in the name of tax avoidance. There’s the time-honored idea of throwing money at our favorite charity, which I definitely recommend. But if you’ve got student loans, they provide you another opportunity to (legally) hack your tax bill.

(Apologies to my readers outside the United States – this article’s probably not for you.)

Why It’s Legal

Before I get started, there’s always someone who jumps at the idea of tax avoidance and claiming deductions on tax returns. Taxes can be tricky business, and some people avoid claiming anything at all, just to make doubly-sure that they’re on the up-and-up.

Don’t be that guy. Tax avoidance is legal, or there wouldn’t be a section for deductions on your tax forms. It’s all about incentives – there are certain actions that the government wants us to take (such as buying houses, paying off student loans, and giving to charity), so the government puts a little cash-back program into the tax system to reward us. Hurray!

It would seem that Uncle Sam wants us to go to school, even if we can’t quite afford it, so there’s a deduction for student loan interest built into the taxes. You don’t even have to do that crazy “itemizing” thing to take advantage of it.

What’s a deduction? Tax deductions and tax credits are easy to mix up. It goes like this: a deduction reduces the amount of income that counts for tax purposes. A tax credit actually takes money straight out of your tax bill (or adds it directly to your refund). Credits are much more rare than deductions, so it’s no surprise that this is a deduction, not a credit.

Student Loan Interest

Some things to pay attention to when trying to harvest your student loan interest tax deduction:

Interest, Interest, Interest! Be careful! This is a tax deduction on interest paid off only, not principal. If your loans aren’t in repayment yet, and you don’t have any loans that build up interest while you’re in school (unsubsidized loans), you don’t have any interest to pay off!

If your loans aren’t in repayment yet, check to make sure you actually have interest before you make payments toward it.

Who gets it? Oh, hey, are you still being claimed as a dependent on someone else’s taxes? Sorry, you don’t get to claim the deduction, the person claiming you does. Apparently the government assumes that if you’re a dependent, you’re not paying your own student loan interest yet. If you want to use this to your advantage, you can try asking your parents/whoever to pay something toward your student loans in order to get the deduction. It’s worth asking! – [Update: According to IRS.gov, it looks like if you are a dependent, no one gets to claim the deduction. I was wrong about this piece of information originally.]

What year to do it in? This relates to the last bit, for some people. If you’re in your senior year, you might be claimed as a dependent this year, and not next year. So it may be to your advantage to wait to do it.

Limits. The amount you can deduct will be reduced if you make too much money. From the IRS website:

For 2008, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly and your modified adjusted gross income (MAGI) is between $115,000 and $145,000. You cannot take the deduction if your MAGI is $145,000 or more.
For all other filing statuses, your student loan interest deduction is phased out if MAGI is between $55,000 and $70,000. You cannot take a deduction if your MAGI is $70,000 or more.

Also, you can only deduct up to $2,500, even if you pay more interest than that. Thanks to reader Angie for the info on limits!

Tax Avoidance In Action!

If this has been at all confusing, or if you just like to see how this stuff actually works, here’s how I did it:

I have a combination of subsidized and unsubsidized federal student loans, so some of my loans have been building up interest while I’ve been in school. There are some complications because of the fact that I dropped out of school and went back nine months later, but what it basically boils down to is that we’re only dealing with the interest that’s accumulated since the time I went back to school, in September of 2007.

Because I’m a senior, I’ll be a dependent on my mom’s 2008 taxes, and I’ll likely be independent when it comes to 2009 taxes. I’ve been building up money to pay off my accumulated student loan interest, so the only question was:

Pay it now, and give my mom the tax deduction [not possible, only I didn't know it at the time this was written], or wait until January 1st and save the tax deduction for myself?

After some debating and asking people what they think, I decided to make the payment last week, and give the deduction to my mom. Here’s why [the reasons why I did it based on the information I had, which would make sense if I were right]:

• She has more income, so the deduction will probably have more impact for her.
• I’ll have the opportunity to pay lots (and lots) of student loan interest for many years to come, and get the deduction for myself. This is the last year I could possibly give it to her.
• I’m a wonderful, sweet daughter. And I’m counting this as part of her Christmas present.
• I got itchy fingers and couldn’t wait to pay off that damn money any longer!

So, I sent $1,323.69 to my student loans – all the money I had saved up. $1,157.88 of it paid off all my accumulated interest, and the rest of it went toward the principal. That last bit didn’t give my mom any tax advantage – I just wanted to pay down my principal a bit before graduation.

Depending on my mom’s tax bracket, this will save her between $165 and $275 on her taxes [Again, not true, but I acted with the information I had at the time.]. Nice Christmas present, don’t you think?

Related posts:

1. Tax Tips for 18-25 Year-Olds
2. The Government’s Student Bailout: Federal Loan Changes
3. Reader Question: Student Loan to Pay Off Debts?

The basic idea for this “legal tax refusal” is to get their income below the taxable level – live on $8,450 a year, or less. The group points out that you can raise that number to $12,450 if you contribute to an IRA, but that extra $4,000 isn’t available to be spent.

Anybody, regardless of their political leanings, can glean some important finance concepts from the group:

• It is possible to live on very little, and the group even provides tips on how to do so. These tips are helpful to anyone trying to reduce their expenses, regardless of income.
• Even on a minimal income, it’s still possible, and advantageous, to contribute to a retirement fund.

Do you think you could live on less than $1000 a month?

Related posts:

1. Tax Tips for 18-25 Year-Olds
2. Early Tax-Bird Special: Free TaxCut Premium
3. Tax Considerations for Student Loan Interest

All you need to do is head over to the contest page and leave a comment. You can get an additional entry in the contest by adding My New Choice to your Technorati favorites, and if you have a website, you can get another additional entry by posting a review of My New Choice on your site!

Hurry up, though – contest ends tomorrow, April 6th at 11:59PM (CST)!

I’d enter, but I already did my taxes!

Related posts:

1. College Money Tip #6: Do Your Own Taxes
2. Taxes: Done!
3. Finally, I Can Do My Taxes!

I can somewhat understand the move to tax Linden dollars, the currency in the game Second Life, which is the main topic of the CNN Money article. Linden dollars actually have a conversion into cold, hard, American currency. But what bothers me is the mention of taxing the money in World of Warcraft. The logic being that because there’s an exchange of goods, there should be a tax (just as you can tax bartering in the real world). From the article:

Tax law is murky, however, when it comes to dealings that occur solely within Second Life or other computer-simulated environments. For instance, is a transaction that occurs only in Linden dollars and doesn’t involve any real-world, dollar exchange taxable?

and

But there is a valid argument that even profits that come from, and stay in, the virtual world are taxable, according to Bryan Camp, a professor at Texas Tech University School of Law. “As soon as you start looking at what’s going on in these worlds, they look a lot like real economic transactions,” he said.

Even if profit isn’t realized in real dollars, there’s still an exchange of items of economic value. In the real world, if someone trades goods or services without the exchange of real money – also known as bartering – that’s a taxable event, Camp noted.

Now, I’ve never played World of Warcraft (although many people have tried to convince me!), but I have played Everquest and Guild Wars (oh man, my geek is showing!), so I feel qualified enough to comment on this.

Basically, it’s a giant crock. Sure, you’re exchanging goods and services… in the game. And yeah, some people do sell game money on eBay. But you have to, have to, have to remember that it’s still a game. Unless the IRS is prepared to tax my Monopoly winnings, they should really stay out of this.

That is, of course, unless they’re going to allow you to pay your entire tax bill in game money. After all, if they’re taxing you for both your day job income and your game income, you should be able to pay your taxes entirely in either currency.

And I’m really not that opposed to paying my taxes entirely in Guild Wars gold. You know, provided I can still get my refund checks in gold ole American dollars! ;o)

Related posts:

1. College Money Tip #6: Do Your Own Taxes
2. My Imaginary 401(k)
3. Taxes: Done!

I would have liked to do my taxes for free, and I probably could have, by e-filing my federal return, and then doing my state returns by hand and mailing them in. But I was a tad worried about doing my state taxes right, because I worked in two states during 2006. Also, I’m lazy. So I paid for the whole she-bang.

Last year with TurboTax*, my taxes (one federal and one state) cost me $48.05 to e-file. Did I manage to do any better this year? Yes, yes, I did. The big thing this year is “free federal filing!” but then everybody catches you by making you pay for your state returns. Fooey! Like I said, I didn’t actually manage to work around this – I just shelled out my money and grimaced.

On a tip from Flexo, I checked out TaxACT. I was drawn in by their Online Deluxe + State deal for $15.95. What I really liked about this was that it offered to give me a nice worksheet to use when I fill out my financial aid paperwork. I didn’t bother to look at how much it would cost me for the second state’s return, which ended up being $12.95.

So…

I Could Have:
Used TaxACT’s Standard edition and done my federal return for free.
Paid $12.95 for each state return.
For a total of: $25.90

But Instead, I:
Used TaxACT’s Deluxe + State edition for federal and one state: $15.95
Paid $12.95 to file the other state’s return.
For a total of $28.90

So was the financial aid worksheet worth the extra $3? In hindsight, no, not really. It won’t save me more than a few minutes on my paperwork, especially considering my mother likely won’t use TaxACT, so I won’t get a nice worksheet like it for her half of the paperwork.

The good news? I’m done with my taxes, and it cost me over $20 less than last year. I call that a win!

*Affiliate link. Because I can.

Related posts:

1. College Money Tip #6: Do Your Own Taxes
2. Finally, I Can Do My Taxes!
3. Pay Taxes on Imaginary Money!

But, I have it now, so I can finally get the ball rolling on some things. This single piece of paper might actually be the key to me going back to school! See, because I can now:

• Do my taxes (and have my mom do hers)
• Fill out my financial aid paperwork once my taxes are done
• Take my finished financial aid paperwork into the financial aid office, and refuse to leave until they help me afford to go back to school.
• Once financial aid is taken care of, I can take care of things on the academic side, and finally change majors (to something much less expensive than film).

Hey guys, soon enough, I might not be a dropout anymore!

Related posts:

1. Taxes: Done!
2. College Money Tip #6: Do Your Own Taxes
3. Pay Taxes on Imaginary Money!