Preparing Taxes for Students

Preparing Taxes for Students

By Tim Frye

In order to be a successful tax preparer you should find a specific area of taxes to specialize in, and find a good niche market for that area. Compartmentalizing your tax knowledge can help you focus on more narrowed client base when just starting out. A good example of this is offering your services to the younger generation, such as college students.

There are aspects of preparing a student’s tax return that can be different than simplified returns, and this article will discuss a few of those variations.


Is Your Client Still a Dependent?

Many new tax preparers can get into a bit of trouble by just assuming that their client is claiming themselves and getting a personal exemption. This is often not the case, especially with college students. The parameters for determining a dependent are heavily based on if the individual is living at home for more than half the year. The student who is living away from home for education purposes is an exception to this rule, and can still be claimed as a dependent if they are in school full time, under the age of 24 as of the last day of the tax year, and do not pay for over half of their living expenses.

In this case the parents can still claim the child, and you must mark the taxpayer as being claimed by their parents on the tax return. The taxpayer will lose access to the personal exemption deduction, and it will instead register as a deduction on their parent’s return.

The Credits

There are a few different credits available to the student taxpayer. The American Opportunity Credit is a refundable credit available to those students who are in the first four years of postsecondary education. It allows up to the $2,500 of the first $10,000 dollars of qualifying expenses to become refundable to the taxpayer. The school must be one that provides a certain level of certification or a degree once completed. The lifetime learning credit is a non-refundable credit that is available to students who attend a place of education that offers certification upon completion. The big difference between the two is the lifetime learning credit is limited to tax liability, and it also is not confined to just a taxpayer’s first four years of postsecondary education. The credit can be up to 2000 of the first 10000 of qualifying expenses.

What are the qualifying expenses?

The determination of what school expenses are considered to be qualified is the most essential part of a student’s tax return. The expenses must be either tuition or school supplies. The money spent on gas to get your client back and forth to school is not considered a qualifying expense. The cost of living at a dorm on campus is not classified as a qualifying expense.

A large student client base can provide solid income when you’re just starting out and also allows you to gain a client that you can grow with, as long as you offer exemplary service that keeps them satisfied.