After moving to the US, I had to submit a tax report (called a tax return) for the first time in my life. I found an intricate list of details, rules, forms and what not to deal with. It intrigued me...
I later obtained certification for being a Tax Preparer in California.
As an international student, I found it hard to understand my rights (and wrongs), and found the information supplied to us by the university, and the software that came with it, extremely lacking.
I found out that in many cases it is possible to pay less taxes (or get a higher refund) by just completing the right form.
Given how cash-strapped grad students are, I wrote this list of tips, to help students maximize their tax benefits.
Any comments, corrections and suggestions for this project are welcome. Feel free to contact me using my contact information in the About page.
The text below does not constitute tax advice or recommendation, and does not replace professional consulting. The details were collected according to the author's best of knowledge. The author holds no responsibility and cannot be held accountable for any implications resulting from actions taken based on this text. Use the information at your own risk. It is always advisable to seek professional tax, legal and financial advice regarding tax issues.
The tips are contain many items, and are therefore divided into smaller subsections:
- Federal Taxes
- Tax Treaties
- Maximizing Credits and Deductions by using the proper form
- Adjustments to income
- Itemizing Deductions
- Extra Items
- California Taxes
- Non-resident or resident forms?
- Adjustments to income
There are basically two (legal) ways to minimize the taxes you pay, or maximize your refund: make sure you receive all tax treaty benefits you are entitled to, and claim all the deductions you can.
Because the number of items in some sections is quite large, the content of several sections was moved to pages of their own with a link here.
Many foreign countries sign on agreements with the U.S. to make sure citizens of the foreign countries do not pay double taxes on their income. The agreements, called "tax treaties", give many benefits, including lowered tax rates on many type of income. In many cases, certain types of income, such as scholarships and fellowships, and also certain types of gains, such as capital gains, are completely exempt from taxes, and are tax free.
The tax treaty details and rules are complex, and change according to each country of origin. A good summary can be found in IRS Publication 901.
The 3 short tables at the end of the publication summarize most of the relevant details according to country of origin. It is better to first look at them instead of reading throughout the entire document.
Maximizing your deductions by submitting form 1040NR instead of 1040NR-EZ
Deductions are sums of money which that can deduct from your income before tax is calculated. The more deductions you have, the less tax you will pay and the higher refund you might get.
US residents and citizens are allowed to deduct a "standard deduction" from their income (which is $5900 in 2009 for a single). Non-residents, unfortunately, cannot deduct this large amount, which means that in order to pay less tax they must specify each deduction they are entitled to on their tax return forms.
The majority of tax preparation software your school will supply you with, or that you will find online will help you fill out the IRS 1040NR-EZ form. This 2 page form (called EZ for "easy") takes a short time to fill, but does not let you claim all of the deductions many graduate students can claim.
This means that as a general rule, it is almost always worthwhile to spend some time on filling out the longer 1040NR form.
A list of some common deductions for which students might be eligible is described below.
Adjustments to income are deductions which can be claimed directly on the 1040NR form. This means that the entire amount spent on eligible expenses can be subtracted from the total income you had.
The list of relevant deductions is contained in a page of its own: most relevant adjustments for nonresident graduate students, and other foreign employees.