College graduates face a lot of new responsibilities when it’s time to enter “the real world”, including filing taxes—many for the first time. As it’s now officially tax season, Earnest has partnered with Intuit to allow TurboTax customers who may have student loans the ability to use their own data to easily get a refinance estimate.
We sat down with CPA and TurboTax tax expert Lisa Greene-Lewis to ask her some of the most frequently asked questions about taxes from recent graduates, and here are her answers.
I was in school for most of 2016. Do I even need to file taxes?
If you earned any income—even if it was under the IRS income filing threshold ($10,350)—you should file your taxes if you had federal taxes taken out since you may get some of your refund back. You may also be able to boost your refund even more if you can claim the American Opportunity Tax Credit or the Lifetime Learning Credit for college expenses you paid. (Read more here.)
If you were lucky enough to receive a scholarship or were paid a stipend for a fellowship, it will be tax-free if you were a degree candidate. You must use the funds to pay for tuition, fees, books, supplies and equipment. If you used the money for anything else, you’ll have to pay taxes on the amount.
What does it mean for my taxes if I moved states in 2016? What state do I file my taxes in?
Moving can be stressful, but figuring out how to file your taxes shouldn’t be. If you moved to a new state during 2016, you’ll file a part-year state return for each state you lived in during 2016, assuming the state(s) collect income tax. (Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming do not have a state income tax.) If you’re using TurboTax, we will ask you simple questions about what state you worked in and automatically transfer your information to the correct state return.
However, remember that if you moved for a job, you may be able to deduct your unreimbursed moving expenses like storage, travel to your new home, and moving trucks.
Some relatives helped me pay off some of my student loans with a big cash gift for graduation. Do I need to report this on my taxes?
Not only is having support to help pay your student loans a huge stress relief, but in the case of receiving gifts to pay for said loans, only the donor is responsible for reporting the gift on his or her taxes, and only if it’s more than $14,000. The IRS sets an annual gift exclusion for gift givers each year. You are not responsible for reporting the gift.
If you receive a monetary gift and use that money to pay an educational institution directly for tuition only, the donor has an unlimited exclusion.
Do I get any tax breaks with my student loans?
Interest on your student loans is tax deductible if:
- Your loan money was used to pay tuition only or closely related expenses
- You signed up for it and you are obligated to pay it back, meaning your parents cannot claim an exemption for you
- Your filing status is not married, filing separately
- Your Modified Adjusted Gross Income is less than $80,000
Each year, you can deduct up to $2,500 of student loan interest from your income, provided you have paid that much. The student loan interest deduction is claimed as a deduction to income. As a result, you do not need to itemize to take advantage of this deduction. If you refinance your student loans, you’ll still be able to get the deduction if you’re within the income required. (Read more here.)
You will receive a 1098-E form from each of your servicers that details how much you paid in interest in 2016 on that loan. For Earnest clients, your 1098-E will be available for downloading from your client dashboard under the Loan Documents section by Jan. 31.
I did freelance work and side gigs last year before I got a full-time salaried job in the fall. Do I need to report that income?
As much as we all love having cash come into our pockets, all sources of income earned from side gigs are still taxable. So, what do you need to do? First, it’s important to keep good records so you don’t forget any income or tax deductible expenses for a bigger tax refund. TurboTax Self-Employed is new tax software for the 55 million self-employed that finds tax deductible expenses that filers may not know they can claim, saving them money.
If you are an independent contractor (such as a freelancer) and make $600 or more in a year, you should refer to your 1099-Misc or 1099-K form. If you have an employer, you will receive a Form W-2.
It’s also always a good idea to keep notes so you don’t miss job-related expenses. If you drive your car for your side job, note mileage and track that. If you take a client out to a business lunch, make sure you note what you talked about so that you can recall the details and prove that you really are claiming an appropriate business deduction for the situation.