So the American tax deadline’s almost here, and if you haven’t filed your taxes yet, you probably should get on that…
If you’re anything like me you usually file early to get that sweet refund cash, but this year I’m filing late because I’m out of the country and have to do some extra steps I’ll explain later. I’ve been doing my own taxes since the days of using pen and paper when I was in high school (!), though I graduated to electronic filing a few years later. The mechanics of taxes are interesting to me, and learning the basics when I just had one grocery store job made it a whole lot easier to step up my tax game as my finances got more complicated.
That’s why I was always surprised to meet people who were like “Taxes? Whatever, my parents take care of that!” or who just threw a bunch of numbers into their tax filing software without understanding what it means. Taxes are a big deal, and knowing how they work can save you a LOT of money over the long run.
I won’t go into a ton of depth here, and this post DEFINITELY shouldn’t be taken as specific tax advice. Instead, if anything I do seems like it might work for you, use this as a jumping-off point and do more research from there.
I like to read the fine-print IRS publications and fill out the individual tax forms myself using Free File Fillable Forms, which is free for everyone and lets you see the nitty-gritty of your taxes line by line. It’s also not for the faint of heart, so for everyone else I recommend starting with any of the tax prep software on the IRS website, which walks you through the process step by step and is free as long as you make less than $66,000.
That being said, here’s a few ways I got more money back this year, in approximate order of how many people will find them useful:
Student Loan Interest Deduction
A few months back I waved goodbye to my undergrad student loan interest forever, so this is my last year taking this pretty sweet deduction. (Trust me, though, I’m much happier not having the debt!)
Basically, if you’re paying back student loans you can deduct the money you spend on interest as tax-free income. (This only applies to the interest, though, and not the entire payment.) This can add up to a LOT, especially when you’re just out of college, so don’t skip this one!
Your student loan company should have sent you a 1098-E form listing how much you paid in interest last year, but if not, the info should be on your online account. Here’s some more info on how the deduction works.
Affordable Care Act Tax Credits (a.k.a. Obamacare)
Since the boss at my old job was crooked, he took full advantage of the law that doesn’t require small businesses to offer health insurance to their employees. That left me out in the cold when it came to health care, which I was able to buy through the Health Insurance Marketplace with a little help from Uncle Sam.
The simple version of how this works is that for people who make less than a certain amount of money but don’t have health care, the government pays part of the cost. The less you make per year, the more the government helps you out, and the Health Insurance Marketplace website makes it super-easy to compare prices and plans.
The tricky part is that you have to tell the Marketplace how much you’ll make in a given year—a near-impossible task for me since I work so many different jobs and my income varies from year to year. You’re allowed to estimate how much you’ll make, but if you guess too low, come tax time you’ll have to pay back the extra health care money the government gave you during the year (yikes!).
The past few years I’ve played it safe by widely overestimating my income and paying a little more for my health insurance every month. Then, if I make below that amount like I did this year, I can get a few more bucks back on my refund. Not a bad surprise…
Once again this is just a super-brief rundown, so here’s some more info.
Business Expenses
I do freelance editing and I also made a little money from licensing my Eikaiwa Bums chapbook to Blue Cubicle Press and selling the physical books in my webstore. That money isn’t much to write home about (yet!), but it’s enough that I’m required to report it, so I try to keep as accurate a record as I can during the year. The plus sides are that it’s good practice for when I’m making more money as a writer, and it gives me a HUGE confidence boost by providing proof that I’m actively pursuing my goals.
Reporting your own small business income is pretty easy, and the IRS even has a special form called Schedule C-EZ for super-small businesses like mine. Just use this easy, literally-anybody-can-do-it formula to find the amount of profit from your business:
Income – Expenses = Profit
…and that’s it. Since I’m a writer and editor, anything that contributes to that work counts as a business expense, which means the cost of office supplies and printer ink, Eikaiwa Bums chapbooks I order from the press, books I buy for doing research, domain registration and hosting costs for this website, and even my trusty schedule book.
I track both my writing/editing income and my expenses using the same spreadsheet I use for keeping a budget, since I like having everything in one place. It literally pays to save your receipts and stay organized, since those costs can really add up over a whole year…
New 20% Business Deduction
This is new for 2018, and though a lot of Trump’s changes to the tax code don’t affect me very much, this was a nice surprise.
The gist is that most people who have a small business and make under a certain amount can deduct twenty percent of their business profits from their total income. I liked this deduction a lot because it was relatively easy to calculate, impossible to miss, and is a solid boost to self-motivated creative people who work on their own, which I’m all about.
Again, if you want to read more, check this out.
Tax Credits for Going Back to School
The formal name for this is the Lifelong Learning Tax Credit, and it’s for people who’ve finished their four years of undergrad and are doing any kind of grad school, degree program, or even a non-degree program or job training class. There’s a bunch of rules I won’t go into here, but the gist is that you’re allowed to take the credit for tuition, fees, and other required costs of taking the class.
Last year I paid for an online TEFL class that I’m slowly making my way through (I swear!), and since it’s through the University of Toronto as an actual, accredited institution, it counts, even though it’s outside the US. The amount of money I could get back was solid, which made it that much easier for me to get the extra teaching credential.
A lot of classes qualify, but there’s also a lot of rules, so I recommend checking out the Lifelong Learning credit in more detail.
Exclusion for Foreign Income
If you live and work abroad like me, there’s a kind of complicated procedure you have to follow to tell the IRS that you made money in a foreign country, even though you don’t have to pay US taxes on it. This is called the Foreign Earned Income Exclusion, and if you live abroad, you should 100% no excuses understand how this works.
In my case (and for most people starting with the JET program), I can only use the Foreign Earned Income Exclusion if I’ve been out of the country for 330 days on the date I file my taxes, so I had to fill out this other form to get a six-month tax extension while I wait for the 330 days to add up. I also had to do a rough draft of my taxes to get the info for the extension, though I can’t actually file them until July…which means no refund for me until summer :-(
If you’re a fellow JET reading this blog, here’s a JET-specific rundown of which forms to fill out and when.
It Pays to At Least Know the Gist of How Tax Stuff Works
I learned about taxes over the long-term by basically reading about them every year as I was filing. It wasn’t a huge time commitment, and it helped me make smarter decisions throughout the year, for example, by tracking my business expenses.
For me, being good at taxes is just another tool in the creative person’s toolbelt that can help you on the financial front. You can get away with not knowing it, say, by paying somebody to do your taxes or coasting through the e-filing process, but I feel way more resilient and gained a lot of confidence after doing the heavy lifting myself.
For me, that confidence is almost worth more than the actual refund—almost ;-)
So I totally have an Instagram now where I post cool and offbeat pics from Japan—check it out!
Plus, you know, there’s other ways to follow me…
But I Also Have a Day Job on Facebook
Occasional Email Update List (extra cool stuff ahoy!)