add taxes post

Author: tlnagy

blog/_posts/2017-05-31-grad-student-taxes.md

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+---
+title: "UCSF Graduate Student Taxes FAQ"
+author: Tamas Nagy
+layout: post
+tags: [random]
+---
+
+I'm currently a 2nd year graduate student in the quantitative biology program
+at UCSF. I am certainly no tax professional[^1], but I thought I would write a bit
+about what you can expect to pay in taxes at UCSF. These are some questions that
+I think I would have appreciated knowing the answers to in my first two years[^2].
+
+### Do we have to pay taxes?
+
+Yes, both state and federal. The tricky part is that while you are paid by UCSF
+on a 1098t nothing is withheld so you have pay the full amount come April.
+
+### How much should I set aside each month for taxes?
+
+Most estimates are between $400-500 a month depending on your specific
+situation. I would probably aim for $425.
+
+Now assuming that you did not have any external income, you should expect to pay
+roughly $2000[^3] in your first year since you are only taxed for October, November, and
+December. 2nd year you have to pay for the entire year and this works out to
+being close to $5000. It's a lot if you're not ready for it.
+
+### How do I e-file for free?
+
+There is no need to pay for e-filing since we make less than the limit for
+[IRS FreeFile](https://apps.irs.gov/app/freeFile/jsp/wizard.jsp?). Just fill out
+the form and select one of the free filing options. I have had good luck with
+TaxAct.
+
+### Can we withhold taxes so that April isn't such a bummer?
+
+Yes. In my opinion, the easiest and best way to do this to
+[set up estimated tax payments](https://www.irs.gov/uac/pay-taxes-by-electronic-funds-withdrawal)
+when you e-file. Your bank account is debited according to whatever
+estimated tax plan you submit. This is also nice because you do not have to pay
+the penalty for failing to withhold income[^4].
+
+### Can we contribute to a Roth IRA?
+
+Unfortunately, to the best of my knowledge, we cannot. Since the money we make on a
+1098t is considered taxable, unearned income it does not qualify for IRA. However,
+the moment you are switched to a W2, you can contribute up to your earned
+income amount or $5500, which ever is smaller.
+
+### What is a Roth IRA?
+
+They are super cool, read more about them [here](https://www.bogleheads.org/wiki/Roth_IRA).
+Basically, they are a great way to save for retirement as a graduate student.
+Since we are in a very low tax bracket, you pay our low marginal tax rate now
+for the money you put in and all future earnings are tax-free for retirement.
+
+### But what if I want to save for more immediate things than retirement?
+
+Roths can still help you. You can always take the principal (the original
+money you contributed, not the earnings) out tax-free since you already paid taxes
+on it. Now I don't recommend this since you can't put that money back later due
+to the annual cap of $5500. But in an emergency, you can access the principal.
+Also, there are exceptions for removing earnings from a Roth without paying the
+penalty like substantial medical bills, first-time home purchase, etc. You have
+to be more careful with the rules here, see [this](http://www.rothira.com/roth-ira-withdrawal-rules)
+for more details.
+
+[^1]: So YMMV on all this depending on your specific circumstances
+
+[^2]: This post was inspired by a presentation by Kyle Barlow at iPQB journal
+club. Thanks Kyle!
+
+[^3]: Naturally, this value will increase if the UCSF graduate student stipend
+increases. For reference, in my first two years, we made 34K (TY2015) and then
+36K (TY2016).
+
+[^4]: This penalty was pretty small for me as a 1st and 2nd year because it
+is based on the previous tax year. It will be quite large in your 3rd year if
+you don't set up an estimated tax payment.