Category Archives: Taxes

Income Tax for Law Students

Everyone seems to have income tax on the brain right now.  The news is full of stories about people who are getting less of a refund this year than they did last year.  Is the reason the changes to the tax code?  Or did they just have less tax withheld from their paychecks?  Or is it both?  The world may never know.

I’m still working on my taxes right now, and things are definitely different from last year.  But the basics of filing your federal income tax as a law student are actually pretty much the same.  Here is what you need to know:

  • The Lifetime Learning Credit still exists, allowing you to reduce your tax liability if you had expenses for tuition and fees in 2018.  You will need to complete IRS form 8863 and Schedule 3 to claim this credit.
  • Student loan interest can still 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 2018 is less than $66,000 you can e-file for free.
  • The 1040 form looks a lot different (shorter) than it did in the past.  And the 1040 A and 1040 EZ no longer exist.  But how you attack the process of filing really hasn’t changed much.

Filing your income tax can be intimidating.  But it’s definitely something that a law student should be able to handle on their own, without having to pay a professional.  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!

Tax Refund?

I finally filed my taxes!  Ok…just the federal.  The state and local are on deck for tonight.  But the worst of it is done!  (Insert happy dance here.)

The first question that pops into people’s minds when you say you finished your taxes is, “How much are you getting back?”  My answer is that I’m not getting anything back.  I had to pay.  I had to pay exactly one dollar.  And you may think that I did something wrong that I’m not about to receive a sudden windfall.  But I think it’s just the opposite.  I did something almost exactly right.  I only missed by one dollar.  I didn’t let the US Treasury hold onto a lot of my money throughout the year.  And I didn’t have to write a giant check.  I had the withholding correct within one dollar.  And that’s about as right as you can be.

A big tax refund can feel great.  But what it really means is that you have been loaning your money to the government throughout the year.  And at tax time they pay it back to you.  Without interest.  Instead of being in someone else’s hands, my excess funds were in my hands.  Earning interest for me.  Paying bills.  Buying concert and music festival tickets.  If I had it to do over again, I wouldn’t change a thing.

Tax refunds are nice.  Not owing is nice.  Being right on track is even better.

 

The Dreaded Income Tax

This year, for the first time in my life, I’ve joined the ranks of the income tax procrastinators.  It’s a lot more complicated since my husband became an independent contractor, so I’ve kind of been dreading it.  And I long for the days when I only had W-2 income and I could have done it in my sleep.  If you haven’t started thinking about filing your income tax yet, it’s probably time.  I, like many, hate the process, so don’t feel bad if you do too.

I’m thankful that there is lots of help out there.  There are a couple of different options to get help with your taxes:  in person or in the form of computer software.  Many people just run in fear from the idea of taxes and assume their best option is to go to the local tax prep office and have somebody else do it.  This is going to be a pricey option.  If your tax picture is simple (e.g.: standard deduction and just wages and interest for income) there’s absolutely no reason to pay someone else to do this for you.  You can easily do it yourself.  If you have itemized deductions and capital gains, it’s a little more complicated, but you should still be able to handle it with the help of a computer program.  You can find a list of several good ones here.

Please remember that if your adjusted gross income for 2017 is less than $66,000 you are able to e-file and receive tax preparation assistance at no charge.

Also, keep in mind that you may be eligible for some educational tax benefits.  You should soon be receiving your Form 1098-T from the University (or you can find it on LionPath in the Financial section.  This will help you to calculate your eligibility for these benefits.

The Lifetime Learning Credit is a tax credit of up to $2,000 available to individuals who file a tax return and owe taxes.  This credit is subtracted from your tax liability, reducing the total amount of federal income tax you pay.  In order to claim this credit, you will need to complete and submit IRS form 8863 with your federal tax return.

If your income is too high to allow you to claim the Lifetime Learning Credit, you may qualify for the Tuition and Fees Tax Deduction of up to $4,000.  This is an “above the line” deduction, which means you do not need to itemize your deductions in order to claim it.  You can find this deduction on line 34 of your 1040 or line 19 of your 1040A.  The required supporting form is available online.

Additionally, student loan interest is an “above the line” tax deductible expense.  If you paid any student loan interest in 2017, you may be able to claim the Student Loan Interest Deduction.  You can find this deduction on line 33 of your 1040 or line 18 of your 1040A.

If you would like to learn more about tax benefits for education, you should reference the IRS publication on these benefits.

Filing income tax can be intimidating.  So many forms!  Federal! State! Local!  Numbers! (I’ve never met anyone who came to law school because they love math.)  But you are all smart enough to do it without having to pay someone or to lean on your parents for help.  Give it a try!  You’ll be surprised at how easy it can be once you get past the initial fear.  And the sense of accomplishment you’ll feel when you are done will be great!

 

The Latest News from Capitol Hill for Law Students

 

While law students were hunkering down over the weekend studying for exams, the eyes of the rest of the country were on Washington, D.C..  Let me catch you up on the pertinent info for law students.

First, the Senate passed their version of tax reform.  There are several differences between the House and Senate tax bills, so now both chambers need to sit down and hammer out the differences to decide what the final version (which will then go to the President for approval) will look like.  Without getting political or partisan, the most pertinent issue for law students is the elimination of the above the line deduction for student loan interest.  For several years student loan borrowers have been able to deduct up to $2,500 per year in student loan interest paid, without having to itemize deductions.  This deduction is wiped away in both the House and Senate versions, so it’s pretty safe to say this one is going to be gone.  The next most pertinent thing is the education tax credits.  Law students are able to take up to $2,000 a year from the Lifetime Learning tax credit for tuition and fees paid.  The House bill eliminates this credit, but the Senate bill does not.  So we’ll have to wait and see how that one plays out.  And finally there is the taxability of tuition waivers, which is less pertinent to law students, but a very big deal to many other graduate programs.  The House bill proposes that tuition waivers (such as those offered to grad students with assistantships) will count as taxable income.  This is also not in the Senate version, so I am hopeful that grad students throughout the country will be spared this burden.  (But don’t worry about scholarship and grant funds—these are taxed differently than waivers and will not be affected.)

Meanwhile, while the Senate was talking tax reform, the House introduced a bill specifically for higher education student aid reauthorization.  And it scares me.  There are a few things I like about the bill.  For starters, it would do away with student loan origination fees.  And it would also provide for more intensive student loan counseling.  But that’s pretty much where my happiness ends.  Here are some of the proposed changes that could affect future law students:

  • Graduate student annual federal loan limit of $28,500
  • Aggregate grad federal student loan limit of $150,000
  • The multitude of income driven payment options that we have now replaced by only one plan that would not allow for forgiveness after a certain number of years (only after the full amount of principal and interest is repaid in full).
  • The end of Public Service Loan Forgiveness
  • No more work study for graduate students

This bill is, of course, just the starting point.  The House will be talking about it and marking it up more in the coming weeks.  And then the Senate has to come up with their version, and then the whole reconciliation of the two different bills has to happen.  So it’s likely that this will not all come to pass…this is the lowball offer that we’re starting with, so there will be plenty of room for negotiation going forward.

Now is the time when the constituents come into play.  If you have an opinion on any of this proposed legislation, you have the right (and duty) as an American to make your Representatives and Senators hear your voice.

It’s been a busy few days in D.C..  And it definitely looks like lots of interesting (and sort of scary) stuff is coming down the pipeline.  Feel free to reach out if you would like to discuss any of it with me.

And good luck on exams!