Do your own taxes!

It's not rocket science.

(Yes, the tax code is scary and intimidating. The curious can browse through a complete copy on-line, all 3.4 million words with 23,000 cross-references!)

But, the fact of the matter is that income tax returns for most new graduates are pretty straightforward and the IRS has tried to translate all that code into something that taxpayers can understand.

Preparing your own tax return is a good way to force yourself to take a close look at your overall financial picture at least once a year. (Even if you wind up going to a professional in the end, it's worth trying to do it yourself to get a feel for your tax situation. And, caveat emptor, professional tax preparers make mistakes too, and YOU are ultimately the one responsible for filing an accurate return, so it's important for you to understand the return you are signing.)

Tax issues that typically face recent grads:

Line 6) Exemptions: Can your parents still claim you on their 2009 tax return (the one they file next April) if you graduate in June? That depends: the relevant IRS rules are here. If you provide more than 50% of your own support in 2009, they are not permitted to claim you, and you can claim your own personal exemption.

Line 7) Wages, Salaries, Tips: This figure should reflect the total of the amounts reported in Box 1 on all the W-2's you receive for all jobs held during the year.

Line 8) Taxable Interest: Banks and other financial institutions that pay you taxable interest will issue you a 1099-INT each January showing the amount of taxable interest paid. If the amount of interest is small, you may not receive a 1099-INT, but you can find out the amount of interest paid by looking at the "Year-to-date Interest Paid" figure on your last bank statement of the year.

Line 18) Student Loan Interest: You may be able to deduct up to $2,500 in student loan interest from taxable income. The relevant IRS rules are here. The financial institution servicing your student loans is required to send you an annual statement showing the total amount of interest paid each year.

Line 31) Education credits: If your parents can claim you as their dependent and if they choose to claim you as their dependent, THEY may be eligible for the education tax credits for tuition paid.

If you parents do not claim you as their dependent, YOU may be able to claim education tax credits for eligible tuition paid on your behalf. This turns out to be a pretty complicated issue. Colleges are required to issue you a 1098-T tuition statement which shows the amount of tuition billed each year. However, the figure you need is not the amount of tuition billed last year, but the amount of tuition PAID during the year. These may not always be the same. It gets especially complicated when grants are involved, since they need to be netted out from tuition.

There is more guidance available from the National Association of Student Financial Aid Administrators here.

The IRS also has a very comprehensive Publication 970: Tax Benefits for Education. This is a really helpful resource that covers a broad range of topics including student loan interest, tuition tax credits, tax treatment of scholarships and graduate fellowships and stipends, and the tuition tax deduction. Some of you may be fortunate enough to find an employer who will pay for some of your graduate school tuition. The tax treatment of that benefit is covered here.

In the end, even after you've done your fairly simple tax return by hand, you may want to use tax software (e.g., TurboTax or TaxCut) to do your taxes. If your income is under $52,000, you may be able to use free versions of TurboTax, TaxCut, and other similar software to prepare and e-file your tax return for free through the IRS Free-File partnership available free at the irs.gov website. I would strongly recommend doing your taxes by hand and with the software as a double-check.

Important WARNINGS: The IRS has carefully checked the on-line third party software providers in their Free-File program and they have checked for safeguards against identity theft. There are fake "look-alike" websites that try to entice people to enter their personal financial information. Beware! Always use the irs.gov website to access the Free File partner programs.

Situations in which you'll probably need to use a paid preparer: multiple state tax returns (because of income earned in different states, e.g., due to moving, or living in one state but commuting across state lines to work in another state.) This can get pretty complicated as you may need to file state tax returns in both states, and you may be able to claim a credit for taxes paid to one state against your tax liability in another state.