The only proverbial inevitability of our existence besides death – tax season – comes every year, and this one is almost at its close. With the April 15 filing deadline looming, most in the adult world are scrambling to have their income-tax forms in the mail by 11:55 p.m. Sunday.
For students, the world of 10-40s and CPAs seems like a foreign language. But with a growing number of students taking on the task of filing their own taxes, tax literacy is becoming a necessity.
TECHNOLOGY: TOOLS OR TROUBLE?
Thanks to rapid technological innovation, the process for young people detailing their income has become easier – in theory. Electronic filing programs like Turbo Tax and E-File create steps and offer a guided process attractive to some students filing their taxes.
In recent years the number of students filing taxes separate from their parents, often using electronic methods, has increased, said Steven Elliott, a senior tax manager with international accounting firm Urbach-Hacker-Young.
“Turbo Tax is fine, if the person filing out [the] information knows the terminology and laws of the tax world,” he said. “The problem is that most 18- to 24-year-olds are not versed nor experienced in this information.”
Some students are able to navigate the huge amounts of information on the internet to take advantage of such digital filing programs.
College of Arts and Sciences freshman Autumn Froias, who files her own taxes, used E-File because of its simple, organized template.
“Even though I didn’t know much about the small print of tax law, using E-File was a lot simpler than filing out my 10-40 on paper,” she said. “[It helps] you organize your financial information and [tells] you what you need to tally up.”
Tiffani Murray, a college life writer, advises students in tax-related issues and warned students electronic filing can create a false sense of comfort.
“Although technology is appealing, there is a downside,” she said. “Sometimes there is so much information on the Internet about filing correctly that it can be overwhelming.”
According to an Internal Revenue Service representative, the IRS does not even release statistics about the number of taxpayers under the age of 24 because of the complexities involved in determining who is still a dependent of their parents.
IT’S ALL IN THE FAMILY
Though filing tax forms imparts a sense of accomplishment to students doing it themselves for the first time, the complicated regulations of the Internal Revenue Service are overwhelming and many admit they turn to their parents for help.
“I didn’t truly understand what I was doing the first time I picked up my W-2s from work,” said CAS freshman Bailey Roese. “It had all my monetary information, but I didn’t understand what I was supposed to do with it.”
Roese said she learned the majority of the information she needed from her parents and her family’s accountant.
“You don’t need to know everything, but make sure you know what rules pertain to you,” Roese said.
Similarly, Froias, who filed her taxes for the first time this year and did it electronically because it was easier than writing out the returns, said that had she not had the help of her parents, she would have never been able to send out her own returns.
“I wouldn’t understand tax law anyway,” she said. “My parents were able to explain to me what form meant what, and how I should go about filling them out.”
“If I didn’t have someone to tell me how to do it, I also wouldn’t have known about a lot of the credit I would get back,” she added.
MYTHS AND MISPERCEPTIONS
First-time filers often get it wrong. Elliott said students have many common misconceptions about doing their taxes – younger people are quick to rush when filling out the forms, he said, and they are also more likely to make untrue or unrealistic assumptions about their financial situations.
“Most students think that they are exempt from taxes, and this is just not the case,” said former CPA Kenneth Noe, financial controller for Cross-Shore Capital Management, a New York-based hedge fund.
“Don’t assume that because you only work part-time that you arenít expected to file a return,” Noe said. “You are treated like any other taxpayer.”
Noe said many students who neglect to file returns because they think their income is too small to tax actually miss out on government refunds they would have otherwise received from deducted wages.
“Students sometimes don’t know about the credits and deductions available to them through the government,” Murray said. “Deductions like Hope Scholarship, Lifetime
Learning Credits and Education Expense Deduction are opportunities students miss out on.”
Hope Scholarship and Lifetime Learning are credits subtracted directly from the taxes that a family owes, while Education Expense Deductions are taken away from a family’s taxable income.
Jonathan McCarthy, a Metropolitan College professor of accounting and former IRS tax auditor, said he believes it is good to become versed in the language of tax law, because the earlier people learn to report their taxes, the easier it will be for them in the future.
“Taxes are not like the Sphinx – there is no great riddle to [them],” he said. “Once you get into the beat of understanding how much you make and how much you owe, the rest is just organization.”
Murray said parents who pay their children’s tuition to continue to file them as dependents, which makes some students think they do not need to pay their own taxes because they are being claimed by their parents.
Another major mistake that students who do file their taxes tend to make is claiming themselves as their own dependent, Elliott said. A lot of young people file their taxes independently of their parents because they think earnings and student status allows them to not be claimed as dependents of their parents.
When a student claims they are their own dependent that means the amount of income tax deducted from a paycheck is considerably less than if the student is the dependent of another person. But students whose parents pay even less than half of their tuition are still obligated to file with their families.
“Students think that they can get a break on their taxes if they claim dependency,” Elliott said. “The thing is that the IRS can only process one social security number and if the students’ parents still file them as their dependent, the error lies in the hands of the student.”
This confusion prevents the IRS from accurately determining how many students are actually filing as dependents of their parents.
NO MONEY? NO PROBLEM
Those who have more money to report don’t necessarily know how to manage it better, because the process is often taken care of by their parents or their parents’ hired accountants.
Analysis of different income groups shows students from lower-class income backgrounds usually begin filing their own taxes earlier in life than do their wealthier counterparts – especially those who are burdened with paying their own way through college, Murray said.
“Parents who pay for their child’s higher education are usually the ones that file their kid’s taxes,” Noe said. “People who have access to a personal CPA usually have them file their entire families’ returns.”
McCarthy said sometimes young tax filers often make errors even before they get into minutia – often, students simply forget to sign the form.