It's much easier to have Todd do your dependent's returns.
Todd's Tax Service LLC
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I'm starting my first job and don't know how to complete the IRS withholding form, Form W-4.
Generally, if your total wages will be less than $6,300 -(For 2015) you will not have any federal or state
tax liability if all of your income is wages (W-2). You may claim "exempt" so only social security and medicare tax will be withheld from your paycheck - no federal or state income tax. Check the box "exempt" on Form W-4.
Link to W4 with "exempt" indicated
Do I have to file if my total wages are under $6,300? The filing requirement changes each
year - for 2015 the filing requirement for a dependent is $6,300. The only reason to file if you are under this threshold is to receive a refund of your withholding, if you had any. For 2015 the filing requirement is $6,300.*
(*If you have investment income or income other than wages, special rules apply).
Should my parents claim me as a dependent? Generally yes until you graduate from high school or college. (As a dependent, you do not claim the "exemption" amount.) Be sure to give your parent's a copy of your tax return (if you file it yourself) as they may need this information to complete their own return.
My return is simple - should I fill it out myself or file online? Your first return is free at Todd's
or $19 for up to 3 W-2s. (Fee is $39 for a complex dependent return) Having a pro do it will insure you don't have any hassles. You can also file online via Todd's website and get assistance if you need it. The 1040EZ is free and the state return is $29.95. Also see the link to "OLT Tax" at the bottom of my "File Online" page which offers rock bottom filing fees.
Who should claim my tuition for the education credit? Generally the parent. Be sure to provide your parents with a copy of your Form 1098-T (tuition form from college). They will also need to know how much was paid for books and required supplies if not included on the 1098-T.
How will Grants and Scholarships affect the tuition credit? While grants and scholarships are usually not taxable, they do reduce the amount of tuition and fees that can be used to calculate any education credits.
Can I include books and supplies when calculating the amount to use for the credit? Yes.
How will things change after I graduate? If you get a full-time job after graduation, some calculations may be necessary to determine who should claim the personal exemption for the final calendar year that includes education and full time work.
I received a CRP form (Certificate of Rent Paid) for my off campus housing. May I claim a credit for this? No, dependents are not eligible for the Minnesota Property Tax (Rent) credit. Unless you are independent, no credit can be claimed. Your parents may not claim this item either for rent paid for your off campus housing.
Are the rules different if I have investment (interest, dividends, capital gains) income? If you have less than $350 in investment income, the standard deduction will remain at $6,300. Otherwise special rules may apply.
What should I do with these savings bonds I received as gifts? If the amount of accrued interest is less than $350, cashing them in shouldn't affect your taxes too much. Otherwise get advice from Todd before cashing in any sizable amounts of U.S. Savings Bonds. Also, older bonds earn good interest and should be kept if possible until maturity.
Saving For College Info
Typically if you start college in the Fall, and pay tuition for that year, you will be entitled for an education credit. The credit is usually reported on the parent's return. In your final year of college, sometimes the timing of tuition payments can be timed to maximize benefits. Please contact me for further information. It boils down to sometimes making sure tuition is paid in 2 calendar years instead of one in order to obtain the credit in both years.
What is the rule of 72? It shouldn't be possible to graduate from high school (let alone college) without understanding Einstein's most important law. Too many American's go to the grave in the poorhouse because they've never learned this basic financial truth.
I'd like to start an IRA - am I eligible? If you have earned income (W-2 Wages) or net earnings from self-employment, you qualify to contribute to an IRA even if you are under 18 or a student in college. Since students and dependents tend to be in a low tax bracket, we recommend the Roth IRA. You can withdraw your principal (amount contributed) without tax or penalty from the ROTH without restriction. Earnings grow tax free until retirement. Your contribution is limited to the amount of your earned income or $5,500, whichever is less.
How do I get started? You may open your IRA at your local bank or credit union. Most institutions allow
you to start with a very small deposit. Visit Vanguard.com to learn about their STAR mutual fund which features a $1,000 account minimum and low annual expenses. The STAR fund invests in stocks and bonds and is not guaranteed or FDIC insured.
I heard this quote today on Marketplace Media (Marketplace Money - Minnesota Public Radio 91.1 on
Saturday mornings at 10:00 AM and repeated on Sunday afternoon at 5:00 PM) and would like to share it here...
"You can take out students loans for college. You cannot take out student loans for retirement."
Something for parents (and their kids) to think about.