The law student tax toolkit


Navigating tax time as a law student can be… messy. Part of the mess comes from the variability in law student backgrounds and life stages, so you won’t necessarily be able to turn to your peers for advice.

Here’s a framework to reduce complexity as you wind down another tax season: learn basic tax terms and updates for the current year, access the tools you need, and get help when the time is right. will have come.

It’s always helpful to start with a basic understanding of tax jargon before moving on to the next steps. Here’s a crash course in tax terms you need to know and how they can help you determine your next steps, and for complete information on all 2021 taxes, check out IRS Publication 501 (2021).

Flat rate deduction: The standard deduction is the amount you can deduct from your income, regardless of your expenses. For 2021, it is $12,550 for single filers under age 65 and $25,100 for joint married filers. You are required to file a tax return if you earned more than the standard deduction in 2021, but you can choose to file even if you earned less.

Deductions and tax credits: Even if you choose the standard deduction, you can still take advantage of other deductions that reduce your taxable income, such as contributions to a 401(k), traditional IRA, and health savings accounts. Tax credits are different from deductions in that they offset your actual tax liability (not your taxable income), dollar for dollar.

Form W-4: An IRS form that you submit to your employer, so they know how much to withhold from your pay for federal and state taxes.

Form W-2: A form generated by your employer(s) and sent to the IRS that shows your annual salary and the federal and state income taxes they have already withheld on your behalf.

Form 1040: The form used by US taxpayers to file an annual tax return. It outlines all of your income, expenses, deductions, and credits and transmits your information to the IRS for federal income tax purposes and to your state for state income taxes (if applicable).

This list of terms is certainly not exhaustive, but it is a good starting point if you are just starting to manage your taxes on your own. Now that you have an idea of ​​common tax conditions, let’s move on to the tools you can use to determine whether (and/or should) you file a return and how to do so, if you do.

Do law students have to file a tax return?

Whether you file or not largely depends on how much income you made in 2021. Income from all sources should be considered, including earned income like regular or freelance salaries, and unearned income from dividends and capital gains. Scholarships are also included in the mix if the scholarship was used to pay for living expenses.

Once you have accounted for your income in all categories, you will also need to know if you are declared as a dependent by your relative or someone else, as this may affect your reporting requirements.

Under most taxpayers’ rules, single filers who earned more than the $12,550 standard deduction in 2021 are required to file a tax return ($25,100 for married people filing jointly). Keep in mind that these income thresholds vary if you are 65 or older, or use a different filing status such as head of household, married, separately filing, or eligible widow(er).

If you didn’t earn beyond the standard deduction in 2021, you may not be required to file, but you can still choose to file to get a refund of any withholdings your employers took. during the year. The IRS provides a Do I have to file a tax return? Interactive tool to help you determine if you are legally required to file. They also provide a handy tool Withholding Tax Estimator.

If you are required to file a return, be sure to take advantage of education-specific tax benefits, such as the Lifetime learning credit and the student loan interest deduction. There are eligibility rules for claiming these benefits, so for more information see IRS Publication 970 Tax Benefits for Education.

Dependency Considerations

Generally, parents can claim their children as dependents on their tax returns until age 24 if they are attending college. If your parents ask you, you can still file a return (and may even be legally required to do so), but it’s important to know that benefits like student loan interest deduction and learning credit at life can only be claimed by your relative in this case. Case. If your parents are over the income threshold for certain benefits, it may make sense that they won’t claim you so you can file your own return with lower income to qualify. This is just one example of the importance of considering the whole family. It’s worth getting professional tax help with these types of issues.

Tax reporting tools

There are many avenues to follow when it comes to filing taxes. If you have a fairly simple tax situation and an income of less than $73,000 in 2021, you may be able to file your taxes for free via IRS Free File. Alternatively, some tax software and online programs offer a free filing service for simple returns. Free help is also available through the Voluntary Tax Assistance from the IRS (VITA) program for those who qualify.

Acquire help

Professional tax help is available for all income levels – from filing a simple return with online or in-person appointment services to filing a more complex return with a business you use year after year. Finding professional tax help can be as simple as asking local groups, peers, or professors for recommendations of Certified Public Accountants (CPAs) in your area. This is how many people identify a pro, but there are other ways, such as searching the database at National Association of Enrolled Agents or using the American Institute of CPAs Find a CPA Tool.

Build your tax toolkit using the links in this article

The information provided in this article is for educational purposes only and should not be considered tax or legal advice. Determine whether the information is appropriate for your needs and, if so, seek advice from a tax or legal professional.

About the Author: Derek Brainard, MBA, AFC®, CRPC® is a United States Navy Veteran and the National Director of Financial Education at the AccessLex Center for Education and Financial Capability™. The non-profit AccessLex Institute provides free financial education resources to law students through Ask EDNA! – the Education network of AccessLex.

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