Monday, May 18, 2020 –
I’m finally ready to come back and start writing for public audiences again! Hope everyone is staying healthy and safe.
I reached some young adult milestones this year (2020), including: first time negotiating with a landlord (as a fresh college grad with little savings, it’s hard to convince someone you can pay for rent. That’s a whole story in itself), opening my Roth-IRA, and filing my tax return independently. I filed my tax returns as a fully-funded domestic graduate student and am happy to report that I was able to claim education tax credit. In 2018, I was filed as a dependent, so in order to receive my stimulus check, I needed to file my 2019 return as an independent ASAP. It took maybe a 5-hour chunk of my day for me to figure out what I was doing, which is why I’m sharing my experience! This is applicable to both graduate and undergraduate students.
NEW FILING DEADLINE EXTENDED TO JULY 15, 2020:
1) Find a tax preparation software. This is probably my most helpful tip. These companies tend to be pretty sneaky and their “free versions” of software that you can find from a quick search often have a lot of limitations that require you purchase their “premium” version to use – for only 99$ a year! H-e-double-toothpicks no. Instead, go to the links provided by IRS free file: https://apps.irs.gov/app/freeFile/
I would recommend H&R Block or TurboTax, which are the two most popular filing software used, and are also the top two recommended by Forbes. However, I can only speak to the magic of TurboTax, which is what I use. Unfortunately, you can only use TurboTax if your adjusted gross income is 36,000 or less- which covers most graduate students. For H&R Block, the income limit is $69,000.
2) Find your tax documents. Hopefully, you’re a well-organized person who saves all of your tax documents that you receive throughout the year into one folder. If not, go hunting for your documents and save them all in one folder for easy access. For me, these documents I needed were:
-the 1098-T from my graduate and undergraduate institutions-these are forms reporting your tuition and payment expenses, as well as scholarship/grant amounts
-my bank’s 1099 form for my savings account so I could report my interest income
-W-2 form (reports income from job)
-1099-DIV and 1099-B forms from my brokerage account (yes, even if you haven’t sold your shares yet, you still have to report your profits/losses. I was surprised the first time I learned this)
3) Enter your tax information. If you’re using one of the very nice free file software programs mentioned in Step 1 and your documents you compiled in Step 2, and your documents are formatted exactly the way the software requires, you’re in luck. All you need to do is upload your documents, and Turbotax can automatically pick up all the amounts reported on your forms. If your documents aren’t formatted nicely, don’t worry, just follow the prompts (opt for a full-walk through if this is your first time, and TurboTax explains each section and what it means as you go). I was confused about where to report my stipend, but don’t worry – you will report this in the education section as an amount on your 1098-T from Box 5. If part of your stipend is funded through teaching assistant appointment as opposed to fellowship/departmental grant, you should receive a separate W-2 form from your university’s Human Resources department.
4) Claiming education tax credits: usually, students are eligible for either of these credits: American Opportunity Tax Credit (AOTC), and Lifetime Learning Credit (LLC). The two have different eligibility requirements, but the AOTC offers a more favorable credit amount as it is refundable while the LLC is not, so I would claim this if you can (you can only claim one or the other). I was able to claim the AOTC. You can find here a chart from the IRS, comparing the AOTC and LLC. I attached the eligibility criteria for each, below.
Eligibility criteria for LLC (most graduate students), from the IRS website: Be enrolled or taking courses at an eligible educational institution. Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills. Be enrolled for at least one academic period* beginning in the tax year. Eligibility criteria for AOTC (most undergraduate students, and maybe first-year graduate students), from the IRS website: Be pursuing a degree or other recognized education credential Be enrolled at least half time for at least one academic period* beginning in the tax year Not have finished the first four years of higher education at the beginning of the tax year Not have claimed the AOTC or the former Hope credit for more than four tax years Not have a felony drug conviction at the end of the tax year.
NOTE, that to claim these tax credits, you will need to fill out Form 8863. Happily, if you are using TurboTax, you just answer the questions and the software automatically fills it out for you.
You may also consider the Tuition and Fees Deduction. However, deductions reduce the amount of taxable income whereas credits directly reduce the amount of taxes you owe, and if you claim tuition & fees you can’t claim LLC or AOTC. So if you don’t make very much (which applies to most graduate students), it may be more advantageous to you to claim LLC or AOTC.
5) Filing taxes as part-year resident, of your state which you are currently attending school and part-year resident of the state you moved from. You will need to do this if your graduate school requires you to establish residency in your current state. This just means you will be paying New State Tax rates for the time you worked and resided in New State and Old State Tax rates for the time you worked and resided in Old State. If you have brokerage accounts and need to report gains/losses and dividends, you just need to multiply these amounts by % of year spent in New State vs. Old State, in order to figure out how much of your dividends or profits are taxable by Old State and how much is taxable by New State.
6) Update your address information and bank account information. Make sure your information is up-to-date and accurate, so you can pay your taxes and receive returns in a timely manner!
I procrastinated filing my 2019 tax return because it was a scary unknown entity, but it actually benefits me (as a graduate student making a grad student stipend/salary) to file. Believe me, I was dancing when those returns entered my checking account. Hopefully, this post is helpful for you and makes things less scary!
***This post is merely intended to be educational and does not constitute tax advice. I am not a professional tax preparer.
For more reading on this topic, this is a great resource: http://pfforphds.com/prepare-grad-student-tax-return/ I talked about all these points, but from a more personal and streamlined perspective.