The Art Of Doing Business: Finances, Taxes, The Economy and Profits

WASHINGTON — The Internal Revenue Service today offered a tax tip to college students and first-time filers: use IRS Free File to prepare and file their federal tax return. This and other suggestions can help new tax filers avoid the April 15 rush and maybe even get any refund due within 10 days.

Filing a federal return may seem like a daunting task for a first-time filer but it is made much easier with tax software such as Free File, a service offered by the IRS and private-sector partners that allows everyone to prepare and electronically file their federal tax return for free.

New taxpayers can check out Free File at www.irs.gov/freefile where they can review about 20 software options. Each participating tax preparation software company sets its own eligibility but anyone making $57,000 or less can find at least one option. The software follows an easy-to-use format that asks questions and completes the appropriate tax form based on answers.

An online tool, Help Me Find a Free File Company, will help identify those companies that match the taxpayer’s criteria. Want to know more? There’s a new how-to video available at www.freefile.irs.gov. Also, each Free File software company has links to the 20 states that offer their versions of Free File.

There are two formats to federal Free File: Traditional Free File, which is the step-by-step software offered by participating companies, and Free File Fillable Forms, which is the electronic version of IRS paper forms that do simple math. There is no income limitation for Free File Fillable Forms but it is the best option for people comfortable doing their own tax return. Either format is free and allows for free electronic filing.

Other suggestions:

Check with your parents: If you are under age 24, your parents may still claim you as a dependent if they provide more than half of your support. Your parents can claim you as a dependent or you can claim yourself, but not both. So, talk over your taxes before you start.
File a return: If you had federal taxes withheld from your paycheck in 2009, you should file a tax return – even if you are not required. There’s a good chance you could get a refund.
Use Direct Deposit: When you combine direct deposit with e-file you can get your refund in as few as 10 days.
Gather records: Employees will receive a Form W-2, a statement for your income and taxes withheld. You still must report all your income, including tips. Remember, all income is taxable unless exempted by Congress. By the way, good recordkeeping throughout the year makes this whole tax preparation process a lot easier. See Taxable Income for Students.
Grants, scholarships and fellowships: Amounts spent on room and board may be taxable while the money spent for tuition, books and fees may be exempt. ROTC allowances are not taxable, but ROTC active duty payments are taxable. See Tax Information for Students.
Expanded education credits: The new American Opportunity Credit provides a maximum $2,500 credit for tuition, books and fees. Heads up: If your parents claim you as a dependent, they get to take the credit. Otherwise, you get to take the credit in most cases. For details, see Publication 970, Tax Benefits for Education.
Only the person who made the tuition expenditure can claim this credit. So, if your parents are footing your bill, they get to claim the credit.
Recovery Tax Credits: In addition to education credits, the American Recovery and Reinvestment Act provided new benefits for homebuyers, energy upgrades, new vehicle owners and workers through the Making Work Pay Tax Credit. See www.irs.gov/recoveryfor more details.
Earned Income Tax Credit: If you’re 25 or older, you may be eligible even if you have no children. See www.irs.gov/eitc for details.
Save a little; spend a little: Another new provision this year lets you also use your refund to purchase U.S. Savings Bonds.