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Top 5 Taxation Matters To Consider For Students

Top 5 Taxation Matters To Consider For Students

Did you know that students have their own set of tax laws?

In college, there are different tax rules that apply. Take a look at some of these tax laws that apply specifically to students:

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I. Native Students

If you are a US resident, you will have a base tax of 14 percent on everything you make while in college. Scholarship money is often subject to this tax as well. Most students are still on their parent’s taxes, so it is important to discuss the potential tax with your parents to avoid shock during tax time.

Fellowship funds used for books, school fees, and tuition are exempt from the tax. Any salary earned from the school, including financial aid, will be taxed using a standard W-2 income tax form.

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II. International Students

International students must also pay taxes on the salaries that they earn. You may also be eligible for US tax exemptions on fellowship stipends or assistantship salaries, but only if your home country has an existing tax treaty with the United States. If you meet the residency requirement, you will be taxed as a US citizen. You must stay in the country for 31 days each year or over 183 days over a three-year period.

III. Tax Deductions and Education Credits

Whether you are a native resident or not, you could be eligible for the following tax deductions and credits:

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American Opportunity Credit:

This credit gives up to $2,500 per year for each student enrolled in higher education for 4 years. Whoever is filing taxes can receive this credit, but students and parents cannot claim the credit for the same student.

Coverdell Education Savings Accounts:

This account is a custodial account set up to pay for college expenses. The point of the account is to allow a student to get tax free distributions to pay for qualified education expenses. Owners of the account can pay up to $2,000 per year into the accounts.

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Education deductions:

You can also deduct certain education expenses from your taxes each year. These deductions can include the cost of transportation to school, any equipment purchased for school, accrued fees, and a variety of others.

IV. Forms to File

As a US citizen, you must file federal Form 1040 for your taxes and any required forms by your state. As a non-US resident, you must file federal Form 1040-NR and any required state forms. Some states may consider non-native students residents for tax purposes and others may not. California, for example, taxes non-natives as residents.

V. Preparing for Employment Taxes

After you leave college, you will be taxed at a different rate. If you are currently still enrolled in school while working, you will be taxed at the student rate. If you have left school, however, you will be taxed at the standard personal income tax rate, which is between 15 and 39 percent.

Tax laws can be confusing, but if you are a student, you will receive many tax benefits that you cannot get at any other time. Discuss the changes with your parents and a qualified tax accountant to ensure you are reporting your education expenses correctly and filing the correct forms.

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Simon Andras

Simon is an entrepreneur who blogs about lifestyle.

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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