Tuesday, February 27, 2007

tax deduction

I started my long journey through this year's very confusing tax situation today. I've got small amounts of income from a decent number of sources, most of which are as an independent contractor, so my work for this year's tax returns jumped threefold. I'm tempted to go to a tax place, but I think I would do just as well on my own (though it would take longer), and I'm too cheap and poor to pay for a CPA.

Anyhow, as I was crunching the numbers, I came across the realization that the 2006 1040 form does not have a line for Tuition and Fees, like the 2005 form did! As a student who makes very little money and has to pay a good chunk of it back into the university for non-remittable fees (roughly 8% of my stipend), I was a bit put out. This was great in the last many years, because I didn't have to itemize my deductions to get the break.

After some digging, I came across IRS publication 970 that describes this deduction MANY times before finally explaining how to take the deduction. For all the other U.S. grad students out there, here's how you do it:

  • Put a T next to the box for line 35. The instructions say to put it on the dotted line, but my copy of form 1040 doesn't have said line.
  • Enter the deduction in the box for line 35.

This is pretty janky. Is it just me, or does this seem like kind of a last-minute "oh crap, we shafted the students, better do something" situation? This thought is further backed up by this tax law change brief that I later found. It mentions how the Tuition and Fees deduction expired, but has been "extended" until 2007.

It's also important to note that there's a cap on how much you can deduct of up to $4000 depending on your gross income. This may or may not be new this year (I don't know).

2 comments:

Keith Casey said...

It gets even worse after you're out. Did you know that many of the student loan deductions are reduced once you hit $50k/year?

While this might be great for the "History of German Culture" majors out there who are glorified secretaries (yes, I know one), it completely screws those of us who busted our asses got degrees that let us take (or create) jobs that actually pay well.

Live it up now Sid, it only gets worse from here...

Sid Stamm said...

I wouldn't say you're more screwed than I am, Keith. At least your income is decent. I live pretty much at the poverty line, so when they nearly take away the one deduction that can help me (then make it hard to find out how to take it), my bank account and I freak out. Couple this with IU's tax people who are HORRIBLE about telling grad students how to properly do tax withholdings (they withheld almost nothing for me this year, without explanation, and one withholding was negative), I can't wait for a new tax situation.

On a side note, I tried using an online free-file service from a pretty big firm, and as I was reviewing the forms it generated I noticed it "forgot" to do schedule SE. This seemed like magic to me, because the amount I had to pay in dropped to a third, but once I figured out why, it worried me greatly.

Anyhow, my aim is to befriend a good CPA wherever I land when I get out of school!