Start early on taxes and FAFSA
Early filing of both your FAFSA and your 2007 taxes may facilitate a more generous financial aid package—particularly if your school has a first-come, first-served system. Don’t put off filing your FAFSA because your 2007 taxes aren’t ready. The FAFSA allows you to estimate those taxes, then update your application online. Early tax filing supports your FAFSA and any other financial aid requirements your school may have. Nailing down next year’s funding resources (and snagging any refunds) makes it much easier to plan ahead and budget wisely.
Eligible for tax benefits for grad students?
Tax-law changes in recent years have added and expanded higher-education tax benefits. Before you prepare your 2007 income tax return, determine your eligibility for any of these tax breaks or credits with a qualified tax adviser, the IRS on the Web at www.irs.gov, or by calling (800) 829-1040. You may wish to consult IRS Publication 970, Tax Benefits for Education. Other useful IRS links include 2007 Tuition and fees deduction and 2007 Lifetime Learning Credits.
If you made any student loan payments in 2007, you may be able to reduce your taxable income by up to $2,500 for interest paid on those loans during the tax year. You may also want to check with your school regarding issues (assistantships, fellowships, scholarships, etc.) specifically related to graduate students and their tax obligations.
- Credit or deduction, which is better?
If you qualify, a tax credit generally is more beneficial than a deduction. While a credit directly reduces the tax that you owe, a deduction reduces the amount of your income that is taxable. To determine the value of a deduction, multiply the amount of the deduction by your tax rate. - Employer-provided education benefits
You may be able to exclude from your taxable income up to $5,250 in higher-education assistance provided by your employer each year. Eligible employer-provided education benefits include payments for graduate school tuition, fees, books, supplies, and equipment.
Tax-filing options are more convenient than ever
Why not take advantage of IRS’s Free File program?
If your 2007 Adjusted Gross Income (AGI) was $54,000 or less, you may be eligible for a free tax preparation and electronic filing (e-filing) service called Free File. Since the Internal Revenue Service (IRS) contracted with the Free File Alliance LLC in 2003, this group of commercial tax software companies has prepared and e-filed millions of taxpayers’ returns. It's worth checking out one of the IRS’s free service providers listed here to see if you qualify. Available in English and Spanish, Free File has a quick turnaround on refunds—generally 10 days with direct deposit. Note: Free File may not allow you to file for a lifetime learning tax credit or other higher education tax deductions.
Standard alternative tax-filing methods
E-filing is the fastest way to file and your refund will be issued in half the time than filing on paper. Most refunds are issued within three weeks. In many cases, you can receive your refund in about 14 days, particularly if you choose direct deposit.
Your IRS e-filing options include:
- Using a tax professional. Many preparers file returns electronically for their clients. You can prepare your own return and have a professional electronically transmit it, or you can have your return prepared and transmitted by a tax professional. Depending on the tax professional, and the specific services requested, a fee may be charged. Look for the "Authorized IRS e-file Provider" sign.
- Using your personal computer and tax preparation software, you can e-file your return electronically from your home. Tax preparation software offering the e-file option is available at your local computer retailer or through various websites. You will need Internet access and, depending on the software program, a modem to file your return. Using your personal computer, you can file 24 hours a day, 7 days a week. You may be charged a fee for having your return transmitted to the IRS. Your electronic return transmitter will inform you when the IRS accepts your return.
Tip: Does your campus offer free tax preparation assistance?
On many campuses, the bursar’s office or accounting department sponsor programs where accounting and finance students provide free personal tax preparation for their fellow students. Check with your college’s business office to see if this assistance is available on your campus.
Additional tax-filing tips
- Keep copies of your completed tax returns, financial aid applications (including electronic records if you e-file), receipts, pay stubs, and other important documents as having these handy will ease the process! Remember:
- Copies of tax returns should be kept for at least three years.
- Copies of financial aid applications should be kept for at least one year.
- Loan promissory notes should be kept until the loan is repaid.
- Even if you do not have to file, you should file a federal income tax return to get money back if you had income tax withheld from your pay.
- You should receive your W-2 Form from your employer by January 31. If you do not receive the form by February 15, the IRS can help you by requesting the form from your employer.
- File only one federal income tax return for the year regardless of how many jobs you had, how many Forms W-2 you received, or how many states you lived in during the year.
- Completed your tax return? Unless it’s April 15, set your return aside for a day, then check it again to verify that it’s filled out completely, the math is correct, you’ve included all attachments, and you’ve signed it! Don’t forget to make a copy for your records.
Additional information
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The FinMan Grad program is provided by Nellie Mae. Learn more at www.nelliemae.com/FinManGrad.