Updated 1-30-2021 to help with filing taxes for 2020.
My hope is to guide you toward completing your taxes and maximizing your tax return! This is a post specifically for lower to moderate income filers and graduate students that want to file federal taxes for FREE and learn how to maximize Federal credits that are refundable (think FREE $$$$). If you made zero income in 2018 you might want to consider reading along to maximize tax credits in 2019, so that you can make enough to get $$$$ back without paying any taxes (yes, this is possible!)
Turbo Tax or H&R Block both offer free programs for lower-income earners or those with simple returns. Let me preface this post with, I am not a CPA nor trained accountant and have never completed taxes without the assistance of an accountant or a program. I am a wife to a medical student and I want to maximize our return while minimizing the amount of taxes I have to pay AND help you do the same! In an ideal world, I would make the perfect amount of income that qualifies us for ALL the tax credits, yet pay the least amount in taxes. This post is to help us all get a little closer to doing just that! Not only will this information help you maximize your tax return in 2018 but it will help you plan for an even greater return in 2019.
For most single or married in graduate school, you qualify for one of the two FREE Turbo Tax filing options. If you are like me and self-employed you will pay a little but there are lots of coupon codes available weekly. Just search the web. After this post, many of you may want to consider making a small income to maximize your refund in 2019!
Step 1: Figure out which options is for you by calculating your AGI (Adjusted Gross Income). If you make less than $34,000 choose option A, but if you are not sure click here to do the calculations. It’s important to do this step first because you can not switch to option B, if you don’t qualify for option A. They are two completely separate websites, though both are run by Turbo Tax.
Option A: TurboTax Free File Program is geared towards lower-income filers, regardless of tax return complexity, and is only offered through the IRS Free File Alliance (FFA) program. No upgrades to TurboTax PLUS or Audit Defense or self-employment available. This is just for those who made less than AGI (adjusted gross income) of $72,000 and below.
Option B: TurboTax Free Edition, on the other hand, can be used by higher-income filers but only handles simple returns.
Simple tax situations covered in TurboTax Free Edition:
- W-2 income
- Limited interest and dividend income reported on a 1099-INT or 1099-DIV (RothIRA, checking/savings accounts that earned interest) *Traditional IRAs are not reported unless you withdraw
- Claiming the standard deduction ($12,000 single, $24,000 married)
- Earned Income Tax Credit (EIC)
- Child tax credits
- Itemized deductions
- Business or 1099-MISC income *side-gig, self-employed, if this is you then choose option C
- Stock sales
- Rental property income
- Credits, deductions and income reported on schedules 1–6, such as the Student Loan Interest Deduction (If you are not paying loans down, most likely the interest it is better to take a standard deduction and not itemize anyway)
Option C: Premier Plus, for self-employment.
Example of possible intern or medical student:
Step 2: The option you choose will walk you through inputting all your income, deductions (reduces that $ income amount you need to pay taxes on), and credits (the $ amount you qualify to get back based on your filing status, #of kids, and earned income) If you know you do not have more than $12k single/$24k married of itemized deductions (think $gifts to non-profit, interest you are paying on a home, then the new standard deduction amount may be right for you.)
Seems easy enough right?!
Now let’s take this a step further. I am going to show you how to MAXIMIZE your return! This post is specifically for helping those in just out of graduate school or in graduate school (especially those with kids), whose spouse may be earning income or maybe you have a side-gig as a graduate student and qualify for the standardized deduction. This is not tax advise for those whose spouse can work full-time making over $51k or DWT.
If you are married $24,000 is the standard deduction ($12,000 single); therefore, stick to an income at or below $24,000 so you don’t have to pay Federal taxes on this amount as of 2020!
There is actually an EITC (Earned Income Tax Credit) which will refund you a % of your income (see chart below). That’s right you can actually get refunded $ for earning a low to moderate income! The only catch is you can not have investment income (including tax-exempt interest, dividends, net rent, net capital gains, and net passive income, and royalties) that is more than $3500.
If a tax filer has no qualifying children, he or she must be between 25 and 64 years of age to be eligible for the EITC. There is no age requirement for tax filers with qualifying children.
Example: For a couple with two children and about $5,000 of income = about a $2,000 EITC return
WOW! So essentially you “made” $7,000 not $5,000, that is 40% return on investment.
*If you are self-employed, you pay 15.3% in taxes on your income. 1/2 of the 15.3% (7.65% of my earned income is subtracted) to get the statutory income which is used for the EITC.
Have kids! People call them blessings for a reason, right?! Just kidding.
I know many of you have children and want to show you how the refund can be maximized. Two things can happen. You get $2000/child deducted from the taxes you owe on your earned income and up to $1400/child is refunded if you earn an income over $2500. DON’T MISS THIS! If you have at least one kid consider at the minimum working for someone or starting a small business (1099-MISC) income that will bring in more than $2,500. It takes money to make money.
(Your salary – $2,500) x .15
Example: You make $300 a month with your side-gig = $3600/yr.
($3600-$2500) x .15 = $165 refunded
If you look at it like an investment that is a 4.59% return on your income. WAY better return than the interest earned in a savings account.
How do you get back the full $1400 back per child? Depending on if you are self-employed or working for an employer then there is a variation, but for a general estimate, the ideal is between $18,000-$24,000.
What I found is that if I earned closer to $24,000 my EITC decreased and didn’t make up for the increase in the CTC, so making more doesn’t always result in a higher tax return.
Working from home with Beautycounter (self-employment) and raising our two babies has been such a blessing for our family. When we made the decision for me to stay home and be the primary caretaker, we knew there would be some financial sacrifice. What I am learning is there are thousands of $$$$ to gain in tax refunds for low income earners. A goal of $20K a year in income during your spouses graduate school (first year residence are near to this number also because they started work in June 2020) will allow you to maximize the ETIC and CTC receive roughly $5,500 back in tax credit (not this is paid back to you not a deduction).
That’s over a 25% return on investment. Yes, please!
For those who paid taxes in 2020, you will get back all you paid up to $24,000 if filing jointly ($12,000 single). Most residence are paid in the $50,000s and they only worked half a year so likely they will be getting back most of the taxes they paid June-Dec. There are some positives about being a low paid intern 😉
I hope this information helps you think about how you might add an income revenue stream while you (and your family) are in graduate school (or intern year) MAXIMIZE those refunds!
*If all of this was way over your head and you really are pinching pennies before taking out a private loan or credit card on top of the medical school debt, I don’t mind scheduling a call to maybe help you think through options.