Monthly Archives: February 2025

Tax Tips for Law Students (and others)

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It’s getting to be income tax time.  I haven’t started mine yet, but I know I need to address it soon.  If you want to see an American adult squirm in discomfort, just mention filing income taxes. It always makes me cringe a bit when I hear from students that they are “having their taxes done.”  It’s really not as intimidating as you might think to file on your own.   Here is what you need to know:

  • The Lifetime Learning Credit will allow you to reduce your tax liability if you had expenses for tuition and fees in 2024.  You will need to complete IRS form 8863 and Schedule 3 to claim this credit.
  • Student loan interest can be claimed as an adjustment to income, reducing your tax liability.  You will need to complete Schedule 1 to claim this credit.
  • Student loan disbursements that you received DO NOT count as income.
  • Scholarships that do not exceed tuition and fees DO NOT count as taxable income.
  • If your income for 2024 is less than $84,000 you can e-file for free, with assistance from one of several well-respected tax software companies.  And although they are no longer official IRS partners, H&R Block and TurboTax also offer free versions that many folks are eligible to use.
  • Free in person tax filing assistance is also available through Volunteer Income Tax Assistance.
  • If you need to locate your 1098-T from Penn State, it is available on LionPath.  Click on the “my finances” button, select “manage my account/make a payment.”  You’ll find “Tax Forms” near the bottom of the left menu.
  • If you are living in Pennsylvania and earned income, you will likely also need to file state and local income taxes.
  • Additional guidance for international students is available here.

Filing your income tax may feel a little intimidating.  Throughout my career I have learned that nobody comes to law school because they love math.  But filing taxes definitely is something that a law student should be able to handle on their own, without having to pay a professional (or persuade a parent).  The online/software programs available to help make it really easy.  And if you are getting a refund—that makes it all worthwhile.  And if you are NOT getting a refund, all the better.  That means that you have not been giving the federal government free use of your money all year!

There’s no need to fear.  The income tax part of adulthood doesn’t have to be scary.

Bargains and Values

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Every once in a while I think it is important to look back at topics I have covered in the past.  And one of the more important lessons I think everyone should learn is the difference between a bargain and a value.  A bargain is something that you purchase for a great price.  A value, however, is something that is well worth the price you pay.

For example, I have two pairs of brown cowboy boots.  The first pair I purchased many years ago for a low price of $15.  It was a great bargain.  Except they weren’t that comfortable.  And the soles were pretty slippery.  I probably only wore them three times before they were relegated to a shelf in my closet that I can’t reach without a stepstool, where they continue to collect dust.  The second pair of cowboy boots I bought at a shop in Nashville when I was there for a conference.  It was the ultimate splurge.  I paid $130.  I don’t think I’ve ever paid that much for any other pair of shoes in my life.  But they were super comfortable.  I wore them over and over and over again.  With dresses.  With shorts.  With jeans.  I wore them so much that I actually wore them out.  And then I purchased an identical pair (at a lower price) online so I could keep wearing the boots I love so much.  When you calculate it out to the cost per wear (even including the cost of the replacement pair), it probably comes out to one dollar per wear or less.  I’ve lost track of how many times I have worn those boots over the years.  But they have easily paid for themselves many times over.  Those boots were an amazing value (and will continue to be until I wear them out again).

Knowing the difference between a bargain and a value goes a long way toward keeping your purchases smart.  A bargain price can be very tempting.  But you should always ask yourself a few questions before you make a purchase, even at a bargain price.  Do you need it?  Will you use it?  How many ways will you use it?  How long do you expect it to be useful?  No matter how low the price, if your purchase isn’t something that you can and will use, it’s not worth buying.  My cheap cowboy boots are just clutter that I keep telling myself I need to donate.  They are not useful to me.  My expensive cowboy boots have been a go-to in my closet for ten years.

Next time you are tempted to buy something because the price is amazing, give it another thought.  Is it just a bargain?  Or is it a value?

Keeping Things Interesting

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As we close in on Valentine’s Day, I’d like to talk with you about interest.  But not your interest in that attractive person you have on your radar.  Interest on debt.  And interest on investments.

Did you know that there are two different kinds of interest?  Many people don’t realize this.  Simple interest and compound interest are two very different things.  And they are both good in the right situation.  And they are both bad in the wrong situation.

Simple interest is what most people think of when they borrow money.  When you borrow a car loan or a student loan or a home mortgage, simple interest is what you will typically encounter.  Simple interest is calculated based on the amount of the principal of the loan.  And only on the principal.  So if you borrow $100,000 at 8% interest, your payments will be amortized out over a designated number of years (10 or 25 years for a student loan, usually 30 years for a mortgage, and typically 4 to 7 years for a car loan).  Your payment will consist of a portion of interest and a portion of principal.  Let’s say that $100,000 at 8% is amortized over 10 years.  Your first payment would include $6,085 in principal and $7,754 in interest. But the next month’s payment would be based on $93,915 in principal, so the interest would be only $7,189.  And as you progress through the ten years of the amortization, your payment consists of less interest and more principal every month.  Eventually, somewhere in the middle, you reach a point where you are paying more in principal than in interest each month.  But you have never had to pay interest on more than the $100,000 you initially borrowed.

In a savings or investment situation simple interest is NOT what you want.  In that situation you would earn interest only on the principal.  If you invest $100,000 at 8% you would earn only $8000 in interest for the year.  But if that interest were compounded each month, you would earn $8,300 because in addition to earning interest on the $100,000, you would also be earning interest on the accruing interest.

So you can probably see where I am going here.  Compounding interest is calculated based on the principal plus any interest that has accrued.  And in a savings or investment environment, that is exactly what you want, because it makes your money grow faster.

In a debt situation, compounding interest is the enemy.  And that is exactly how credit cards work if you don’t pay them off in full every month.  Let’s assume that you put $2,000 on a credit card at 18% interest, and you pay only the minimum monthly payment of $100.  You would think that at that pace it would take 20 months to pay off the $2,000.  But because the interest compounds (quite often daily) it would take at least 24 months to clear that $2,000 debt.  Credit card companies quite often compound your interest daily.  That 18% interest rate on $2,000 calculates out to about almost one dollar a day.  So every single day the credit card company is adding a dollar to your balance due.  Compounding interest is exactly what you do not want in a debt situation.  Does this make you want to go read the small print on your credit card statement to find out how often they compound the interest?  It probably should.

Interest can be scary.  But it can also be your friend.  In debt you want to keep things simple.  In investments you want things to compound.  But either way, I hope you found this INTERESTing.