I still remember the first time I filed taxes for my business. In addition to having no idea what a write-off really was, I also didn't worry too much about guessing on the numbers. A few government audits later, I discovered what it really meant to do things the right way. Over the years, I have met lots of business owners that weren't too worried about fudging the numbers, and nearly all of them have run into problems. Proper accounting is important, which is why I created this website dedicated to business accounting. I know that if you learn the right way to do things and focus on integrity, your business can avoid a world of problems.
If you work while attending college, you've probably discovered the necessary evil of filing your taxes. But as a college student who is still being claimed by someone else, you face a unique situation – that of being a dependent who must also file taxes. It can be confusing because the rules are different than for most taxpayers.
So, what's different? And will it help you or harm you? Here are four key changes.
Lower Filing Requirements
Taxpayers who are claimed as a dependent by parents or other guardians have different rules as to when they are required to file taxes.
For most taxpayers, the threshold for mandatory filing is $10,500 in 2014. However, dependents have a lower threshold. Most dependents are obligated to file taxes once they reach either $1,000 of unearned income or $6,200 (in 2014) of earned income. Limits are higher for older or blind dependents.
No Standard Exemption
The reason for the lower dollar requirement for filing is the loss of the standard exemption. Most taxpayers receive a standard deduction and a standard exemption – an amount of tax-free income granted before taxes are calculated.
But, while dependents still get one standard deduction (usually $6,200 for single taxpayers in 2014), the person claiming them receives the tax benefit of the exemption ($3,950 of tax-free income in 2014) instead. This usually means that dependents will be required to pay some tax that they would not otherwise have been required to pay.
Who Gets Education Credits
The other big difference for college students who are claimed by their parents is how the education credits are handled. No matter whether the parent/guardian or the student pays college expenses, the education credits may only be claimed by the parent or guardian. The dependent student cannot receive the education credits in this case. This is important to understand, as it can add up to a lot of money for many families.
The Individual Responsibility Payment
The good news is that dependents are not required to calculate and pay the Individual Shared Responsibility Payment – commonly known as the penalty for not having health insurance – if it applies. Instead, the taxpayer who claims him or her must include this payment.
The decision to claim yourself on taxes or to be claimed by parents should be a shared family decision, as it will affect both parties to varying degrees. It may be best to include a qualified tax preparer like Jeff Baker & Associates, PS or accountant in the decision-making process for the best possible outcome.Share
5 March 2015