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Frequently
asked questions: These are the best explanations as understood by
the Grad Center Gnome. If you have further questions, please consult www.irs.gov
or your tax advisor. The Grad Center and its Gnome cannot bear
any responsibility for your tax preparation and filing.
Best of luck!
What's
the logic behind the tax form?
If you don't get bogged down by the specifics and look at taxes
from a larger standpoint, you'll see that most of the federal tax
forms follow a pattern--(1) how much money did you make? (2) Get
deductions (3) Tax your adjusted income (4) Get credits on the tax
you owe (5) Refigure your tax.
The government first wants to determine how much money
you made. First the feds ask you how much money your employer
gave you (typically, W-2). Then they'll ask you if you made any
interest from saving money at the bank. They will ask you how much
money you made from work on the side or working for yourself (1099
and Schedule C). The government will ask you if you made any money
from investments (capital gains, Schedule D), and so on and so forth.
For many of you, you will not have made money doing anything except
getting paid by your employer. So, many of the lines will be '0'.
That's okay. After the government has figured out how much money
you've made, they want to give you a break by reducing your taxable
income. They do this by offering you deductions.
You can deduct expenses for being a K-12 teacher, having a retirement
account, paying interest on student loans, paying tuition, etc.
Now the government knows your "adjusted gross income."
It now lets you deduct at least $5150 for just being you (this is
called the standard deduction). After that, it lets you deduct another
$3300 for just being you (this is called the exemption). After taking
as many deductions as you can, the government figures out how much
tax you owe. But we're not done. Even after all this, the government
says, you can reduce the amount of tax you owe by taking
tax credits. There's a whole slew of them. And finally
finally, you pay your taxes or get your
money back.
Grad Center Gnome says, "Before we begin, when the term "roughly" comes up, it's because the figure changes every year. I'm lazy and can't be bothered with looking up the exact amounts each year, but want to give you a rough estimate. Check with IRS web site for more information."
Do
I need to file? When is the deadline for filing?
You need to file if you made more than roughly $8,000 or if filing jointly, $16,000. If you
made less than $8,000 but had taxes withheld from your paycheck,
you should file in order to get a tax return. Grad Center Gnome says, "Generally, if you received a W-2 or any variation of the 1099,
somebody has noted to the IRS that they paid you income." You
need to file by April 15. If you can't make it in time, you
can file for extension. Grad Center Gnome's advice: get it over and done
with--extensions leads to further procrastination and stress.
Can
I claim the earned income tax credit? What's the big deal about
this credit?
You can claim the earned income tax credit even if you don't have
a child as long as your adjusted gross income is less than
roughly $12,000. If you have children, please refer to IRS
publication 596. The reason why there's so much talk about the
earned income tax credit (EITC) is because it is one credit
where the government gives you money back even if you don't owe
any taxes. You can only take the credit if you've earned income
and meet the qualifications. Grad Center Gnome says, "Amazing!
I can get a couple hundred bucks back from the government even though
I don't owe them any taxes."
Am
I a resident or non-resident; do I file the 1040 or 1040-NR?
If you are not a citizen of the U.S., you must file a 1040-NR (non
resident) form unless you meet the physical presence
test. If you use CINTAX through OIP, this is calculated for you, but the 1040NR
has the specific instructions for the physical presence test.
Grad Center Gnome says, "Generally, if you are a first or 2nd year student, you will
need to file a 1040-NR. After you have been studying in the US for
three years, make sure to check if you are a resident for tax purposes
because you receive more benefits when filing the 1040."
Check 1040NR Instructions for more information.
Also, if you file the 1040-NR, you cannot take the standard deduction;
you must itemize your deductions using Schedule A. Many countries
have a tax treaty with the US which allows some form of deduction
so that you do not have to itemize. Check Publication
901 for more specific information.
How
much of my student loan interest can I deduct?
If you are paying back your student loans, you will receive a statement
of the amount of loan interest you paid during the previous year. This loan interest
is deductible up to a certain amount as long as you made less than a certain amount. For actual dollar amounts, please check 1040 Instructions.
How
much of my tuition can I deduct?
If you paid tuition in the previous year, you can deduct some of this tuition
as long as you meet the following requirements: (1) you are not
filing as "married, filing separately", (2) you made less
than a certain $ amount, (3) you cannot
be claimed as a dependent on someone’s (such as your parent’s)
tax return, (4) you are not claiming an education credit for
the same student (this means if you decide it is better for you
to take the tuition credit, you cannot take the deduction), and
(5) you were a U.S. citizen or resident alien for all of the previous year or
you were a nonresident alien for any part of the previous year and you are filing
a joint return (generally this last qualification means you must
be filing a 1040 and not a 1040-NR). If you meet all these requirements,
than you can deduct up to a certain $ amount. See the instructions and Tuition
and Fees Deduction Worksheet of the 1040
Instructions.
There is also the
Lifeline Learning Credit. You can only claim either the tuition
deduction or the learning credit, not both. Figure out which one is
best for you!
Do
I need to declare grants, scholarships or fellowships?
For more information, see http://www.irs.gov/taxtopics/tc421.html and http://www.irs.gov/businesses/small/international/article/0,,id=106193,00.html
Qualified scholarships and fellowships are treated as tax-free amounts
if all of the following conditions are met: (1) you are a candidate
for a degree at an educational institution, (2) amounts you receive as a scholarship or fellowship are used
for tuition and fees required for enrollment or attendance at the
educational institution, or for books, supplies, and equipment required
for courses of instruction, and (3) the amounts received are not
a payment for your services. Please note: you cannot
exclude from income any part of the grant used for room and board.
Some countries have tax treaties with the U.S. that affects these
rules. Please check Publication
901 and http://www.irs.gov/businesses/small/international/article/0,,id=129249,00.html
Should
I itemize or take the standard deduction, i.e., should I file a 1040 or 1040-EZ?
If you are filing a 1040-NR, you cannot take the standard deduction
and must itemize. If you are filing the 1040 and are wondering if
you should itemize or not, the only way you can determine which
is better for you is to fill out a Schedule A and see if the
total deduction is more than the government given standard deduction.
Grad Center Gnome says, "The general rule of thumb is that if you're
poor, it's better to take the standard deduction. If you make oodles
of money, then you are probably better off itemizing. For the most part, if you don't own a home, it's generally not worth itemizing your deductions."
What
about e-file?
The IRS gives you the option of electronically
filing your income taxes. The IRS website talks more about e-filing
on its website. It seems that in most cases, the companies will
file your federal taxes for free if you make less than a certain
amount of money per year, but will charge you a fee for filing your
state tax forms.
Which
tax software is best for me?
You must decide which tax software is best
for you. Tax software varies widely in terms of complexity and ease
of use. PC world.com offers two reviews which may help you decide.
[Review
1] [Review
2]
Thanks to Stephen and Damien
for his contribution to this tax site. |
