The Bottom Line

Rhesus Monkeys

It’s Tuesday, which must mean that you’re in desperate need of your weekly tax fix. Well, it’s not quite “Ask the Taxpert”-worthy IRS advice, but for my junkies out there, I hope this will suffice.

Right before the big tax deadline, The New York Times ran an article about taxing as a rite to be a member of society. The Times compared human taxing to rhesus monkeys and food calls, where a monkey who happens upon a tasty morsel must call out to the rest of society and share. If a monkey fails to do so, he is subject to excommunication from the rest of the group and vicious beatings.

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Taxes animals, society, Taxes

Two months ago, this series began with the question, “Have you thought about your taxes?” Now, as we count down the hours to the midway point in April, also known as the dreaded April 15 deadline, I would hope that you, dear reader, have not only thought about your taxes but are also ready for your taxes.

So, here are the Taxpert’s five basic, last-minute tips on filing your tax return, after the jump.
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Personal Finance, Taxes ask the taxpert, Taxes, tips

The standard deduction is a beautiful thing in the world of personal income taxes. According to the IRS, the standard deduction is “a dollar amount that reduces the amount of income on which you are taxed.” Here are my top three reasons why:

1. $5,450. That’s how much less income that you (U.S. citizen/permanent resident, single filer you) can be taxed on in the blink of an eye with this little puppy for 2008. For the eternally low-funded college student like many of us out there, the ability to not be taxed on a substantial amount of your income, thereby increasing your refund check from the IRS, is a wonderful power to have. Even if you were a hotshot i-banker this summer, that amount can represent upwards of 20%, if not more, of your summer wages that magically go “poof!” Read more…

Uncategorized ask the taxpert, standard deduction, tax nirvana, Taxes

More beer money for college

Welcome to the last installment of “How the IRS indirectly pays for a Penn education!” The two tax credits for higher education available for 2008’s return are the Hope and Lifetime Learning Credits. Keep in mind that any student can only claim one of these three credits and deductions: Hope, Lifetime Learning, or the tuition and fees deduction.

There is an income restriction on who can claim either of these credits on their tax return: the tax credit decreases when your adjusted gross income reaches $48,000, and you become ineligible at $58,000.

Only tuition and mandatory fees can be claimed for these credits. Like the tuition and fees deduction, you cannot include amounts spent on room and board, insurance, transportation and other non-tuition expenses. In other words, Friday night BYOs with your friends are not considered a “qualified expense” by the IRS, although many of us might beg to differ. Read more…

Uncategorized ask the taxpert, higher education, tax credits, Taxes

Like I mentioned last week, one of the key parts of the new stimulus is changes to personal taxes. For your edification:

Individual Tax Return

The stimulus generally won’t affect your 2008 returns due in April. The provisions may affect your 2009 returns due April 2010.

“Making Work Pay” Tax Provision

Remember what I said about federal withholding on your paychecks? As part of the stimulus, the government will withhold less tax every week/biweek/month. So you’ll get to keep more of your paycheck during the year, amounting to $400 for singles, instead of the one-time $300 or $600 stimulus check from 2008.

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Uncategorized stimulus, Taxes

Teaser for the weekend’s post:

A tax loophole is “something that benefits the other guy. If it benefits you, it is tax reform.”

— Russell B. Long, U.S. Senator

Uncategorized quotes, Taxes

Form 8917

Last week, I blogged about how the IRS encourages Americans to go to college by offering a deduction against your total annual income in the amount of student loan interest paid. In addition to this lovely deduction, the IRS also offers the tuition and fees deduction if you don’t use student loans (and also if you do use them) to pay for a Penn education.

In practice, in order to claim this deduction, you will need to file another worksheet along with the 1040A or EZ. This is Form 8917, pictured to the right.

Tuition and Fees Deduction

This deduction works pretty much like it sounds: if you or your parents paid tuition and fees, which we all do in order to be able to take classes for grades, you generally can deduct up to $4,000 in income on your tax return. Either you or your parents can take this deduction, depending on whether or not your parents claim you as a dependent and receive the tax benefits of doing so. If your parents do this, then this deduction will be part of the family’s tax return, not your individual return. If you file independently, you can claim expenses for yourself if you paid them. In other words, no one student’s expenses can be claimed on two parties’ tax returns in the same year.

The amount of the expenses can be figured out from “Tuition and Mandatory Fees” found on Form 1098-T that SFS sends you. This form conveniently aggregates the qualified higher education expenses you paid over 2008, which is essentially everything except room and board.

Not everything needs to be paid out of pocket: you can deduct expenses that you paid for via student loans. Getting a tax deduction on technically someone else’s money? Check. But scholarships and grants can’t be used as part of the deduction, so subtract those tax-free amounts listed on the 1098-T from the tuition and mandatory fees amount.

Got a question? Email bizexpert[at]dailypennsylvanian[dot]com.

Taxes ask the taxpert, deductions, higher education, Taxes

According to this article in The Jackson Sun, if you received some tax rebate (read: stimulus checks under the Bush administration) in calendar year 2008 as part of your 2007 taxes, you may still be eligible to receive the rest of the rebate, provided you’re eligible.

If you received a check from the Treasury for less than $600 last year as part of the stimulus, you can check with the IRS to see if you qualify for the balance. Here’s how:

1. Go here to find out the amount of the 2008 payment. You will be using information from the return that you mailed last year (2008) for 2007’s financial data.
2. Fill out the form, and the next page will show you the dollar amount that you will need to enter into the second calculator.
3. The second form is the Recovery Rebate Credit Calculator.
4. Go through the form, fill out the info and the IRS will tell you what your eligibility is based on the information you provided to them about the form you’re filing in 2009, which is based off 2008’s numbers and different from the first form.

Good hunting!

Uncategorized stimulus, Taxes

Did you know the IRS indirectly can help pay for your Penn education? I mean very indirectly. Congress, in its infinite wisdom, uses the tax code to provide economic incentives for certain kinds of behavior, such as the pursuit of higher education. The theory goes that a college education produces more productive workers who benefit society, although the current subprime mortgage crisis begs to differ.

There are three types of higher education tax deductions/credits that are most relevant to the average Penn undergrad or parents who claim their student(s) as dependents:

• student loan interest deduction
• tuition and fees deduction
• either the Hope or Lifetime Learning Credit

Disclaimer: The “average Penn undergrad” in these posts refers to a single filer who is a U.S. citizen or permanent resident, does not make more than $70,000 per year, and files form 1040A or 1040EZ.

Student Loan Interest Deduction

If you use loans like Stafford or CitiAssist to pay your SFS bill and have paid interest on those loans in 2008, you may qualify for this deduction against the income reported (summer earnings, etc.). The only interest that can be deducted is the interest that relates to the amounts of the loan used for qualified education expenses. These expenses include tuition/fees, room/board, book/supplies, and transportation if you fly cross-country to get to Penn every year. The maximum amount of interest you can deduct for 2008’s return is $2,500.

If you want clarification or have a general question, email bizexpert[at]dailypennsylvanian[dot]com.

Uncategorized ask the taxpert, higher education, student loans, Taxes

Dear Taxpert,

Why do we get tax refunds or those checks that the IRS mails to some people every year that makes the recipients really excited about getting extra money?

I Want My Tax Refund NOW!

Dear Refund Now,

The short answer: We get tax refunds from the federal government because during the year, the government takes out money from our paychecks, and at the end of the year, we have to figure out if the government took out the “correct” amount of taxes.

When the government takes out money from weekly/biweekly/monthly paychecks, that amount is called “Federal tax withheld.” As that amount adds up during the year, it functions like a prepayment to the government for our taxes. The same concept holds true for state government taxes, but that’s another can of worms.

At the end of the year when it’s time to file the tax return, all of the income gets added up, any deductions you may have will take away some income and the real amount of tax you should be paying to the IRS is calculated on the difference of income and deductions (the process is a little more complex in reality).

Or: Income – Deductions = Taxable Income -> affects tax you pay

The tax you should pay is on the tax tables published by the IRS, and that number is determined by how much taxable income you have.

The tax that you ought to be paying as calculated from your tax return is compared against how much tax has been withheld from you during the year. If withholding was more than your calculated tax, the IRS cuts you a check. If the calculated tax was greater, you cut the IRS a check.

Satisfied your burning need to know the reason behind tax refunds?

As always, got a tax question? Email bizexpert@dailypennsylvanian.com.

P.S. I commiserate on wanting my tax refund now. My bank account is feeling empty.

Uncategorized ask the taxpert, Taxes