FINANCIAL FRESHMAN #039
TL;DR → Income taxes can be complicated, but “Tackling Taxes” was written to help make them more approachable to you. Skim this FAQ to uncover common questions regarding tax basics, refunds, and tax challenges.
Tackling Taxes – A Review
Welcome back! Over the last several weeks on Financial Freshman, we’ve written about nothing but income taxes. Have we covered all tax information there is to know? Certainly not. What we have accomplished, hopefully, is taught you enough to be dangerous.
And “being dangerous,” in this context, means being able to confidently file your income taxes on your own after you graduate. When you’re doing it, it may actually make sense too!
Along the way, we’ve been leveraging Google keyword data to understand those common tax questions that young adults are likely to have. To wrap up this series, we thought it would be appropriate to outline those questions and answers in an FAQ format.
We’ll lump every question into one of these three categories to keep us organized. We’ll keep it brief, too. Five questions per section.
At the end, we’ll provide links back to this entire series, in case you need to study up! Let’s get started.
Tax FAQ Part 1 – Tax Filing Basics
Do I need to file my taxes if I’m a college student?
Maybe! If your total income was less than the Standard Deduction ($14,600 in 2024), and your parents are claiming you as a dependent, you may not need to file. It’s often worth checking, because you may be eligible for a refund. As a rule of thumb, you should definitely file if you made more than the Standard Deduction, regardless of whether or not your parents claim you as a dependent.
How do I know if my parents are claiming me as a dependent? If they are, when do they stop?
Short answer—ask them. They can check their recent tax returns and see if they claimed you as a dependent or not. Once you turn 24 or are no longer a full-time student, your parents can’t claim you as a dependent anymore. This can happen earlier if you begin providing more than half of your own financial support.
What software should I use to file my taxes for the first time?
On this blog, we recommend FreeTaxUSA. It’s easy to use, filing your Federal return is free, and filing your State return costs $15.
What happens if I miss the tax deadline?
The deadline for filing your tax return is tax day, which is April 15th of every year. If you miss this deadline and you owe money in taxes, you will be subject to late filing penalties and interest on your unpaid balance. If you miss the deadline and are entitled to a refund, there will be no penalty other than a delay to the money you’re entitled to. It’s worth noting that you can ask the IRS for a six-month extension to file.
What documents do I need to file my taxes?
This answer depends on your financial picture, but these forms are likely relevant for your situation:
- W-2: For income earned from your employer
- 1099: For income earned from self-employment or freelancing
- 1098-T: For tuition and education expenses
- 1098-E: For student loan interest
When preparing to file, think about all the places where you’ve earned or received money throughout the year and understand whether or not you’ll receive a tax form.
Tax FAQ Part 2 – Maximizing Refunds & Reducing Taxes
What tax breaks can I get as a student?
We covered this in detail in Part 4 of this series! Click that link, and navigate to the second section titled “Student Tax Tips.”
Should I claim the Standard Deduction, or itemize deductions?
When you first begin your career, it is unlikely that you will itemize your deductions on your tax return. The tax software that you use will check behind you, but you should always claim the Standard Deduction unless you have deductible expenses greater than $14,600 (in 2024).
What is the American Opportunity Credit? Do I qualify?
The American Opportunity Credit is a tax credit designed to help students with the costs of higher education. It provides up to $2,500 per year for the first four years of college education. The IRS provides these 5 bullet points to quickly understand your eligibility.
What’s the difference between a tax credit and a tax deduction?
Both of these fit underneath the umbrella term of “tax breaks,” so they’re both good things! Tax credits give you a dollar-for-dollar reduction in your tax bill, while tax deductions only reduce your total taxable income.
I recently started my career, what can I do to reduce the amount I’ll have to pay in taxes?
Does your employer offer a Traditional 401(k), Heath Savings Account (HSA), or Flexible Spending Account (FSA)? Leveraging these tools is one of the best ways to reduce your taxable income. This is because contributions to these accounts would be made with pre-tax dollars, reducing the amount of your income that is subject to taxation.
Tax FAQ Part 3 – Common Tax Challenges
Why did I get such a big refund?
Unfortunately, the internet is filled with individuals that celebrate receiving a large tax return. It’s common to treat this large return as a bonus instead of acknowledging what it really is—your money, which you accidently loaned to the IRS all year. If this happens to you, you should adjust your withholdings so that you get more of your money with each paycheck. Remember that the goal when you file your income taxes is to break even!
Why did I owe so much in taxes?
You guessed it—getting hit with a large tax bill indicates the opposite problem. Remember to think about your withholdings as estimated tax payments that you make throughout the year. If you receive a large bill, it means that these payments likely aren’t large enough.
I had an internship in another state, how will my taxes work?
No sweat! All tax software tools are equipped to help you navigate this situation. Depending on the state, you may have to file income taxes for the state that you worked in. In addition, you’ll likely still have to file a return for the state in which you reside. The paperwork you receive come tax time will help you stay organized regarding the earnings you had in each state, which will make it easier to file properly.
I filed my taxes and then realized I made a mistake, how do I fix it?
The tax software you select will help you navigate this as well! If you’ve already filed, you’ll just have to complete Form 1040-X, which is an Amended Income Tax Return.
I received money through Venmo/Cash App throughout the year, does that have tax implications?
Most users of these apps are only receiving payments for personal transactions, which won’t have tax implications. If you receive money through Venmo (for example) for goods or services, you should expect to pay taxes on this money if you surpass the $600 threshold. Don’t worry, you will receive Form 1099-K if there are tax implications you should worry about.
Final Thoughts
We hope that this FAQ, and the series that came before it, helped you feel more confident in your tax knowledge. Going forward, we’re confident that these fundamentals will help you tackle your income taxes the right way.
If you missed any part of “Tackling Taxes,” use these links below to navigate to each of the first four parts. Until next time!
