Tax Tips for International Grad Students


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:

  1. Federal Taxes
    • Tax Treaties
    • Maximizing Credits and Deductions by using the proper form
    • Adjustments to income
    • Itemizing Deductions
    • Extra Items
  2. California Taxes
    • Non-resident or resident forms?
    • Adjustments to income

Federal Taxes

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.

Tax Treaties

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

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.

Itemize Deductions

California Taxes

International Grad Student Tax Tips - Adjustments to Income

This page is part of a larger article on how foreign students can save on their taxes.

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.

Scholarship and fellowship grants

Scholarships and fellowships are generally tax exempt only if they are used to pay for tuition, fees and other "Qualified education expenses". Any extra amounts, including ones used to pay for living expenses, are treated the same as other types of wage. In many cases, however, a tax treaty treats this types of income differently, allowing for a lower tax rate on scholarships and fellowships. The condition is typically that these amounts of money were given to a student without any condition for work or other services in exchange.

This means that a student should prefer to receive his income as a scholarship and not as regular compensation for work.

As an example, if your school pays you a stipend of $20,000 a year in two parts: $10,000 as a scholarship and $10,000 in return for being a teaching assistant, you might want to ask them to split the income differently, if possible, and to pay you a smaller percentage as salary, as long as the rules allow it.

The treatment of Scholarship and Fellowship income is described in Publication 970 and in Publication 519.

Qualified Higher Education expenses

Studying for a graduate degree entails many expenses related to your studies. Such expenses may include textbooks, software licenses, office supplies, materials and tools and other course related expenses.

If those expenses are required from all course participants, you can deduct them from your scholarship income.

Full details of what can and cannot be deducted appear in Publication 970.


Many graduate students turn into parents or have other dependents while they study. You may be eligible for different tax credits and deductions for your dependents.

Many of the details can be found in the instructions for form 1040NR.

Moving Expenses

As a foreign student, you probably had some significant moving expenses which may include airfare or other travel expenses, shipping costs and lodging costs.

All of these expenses are fully deductible on the year you had moved, and can yield significant tax savings.

Calculating the amount of expenses to deduct is done using IRS Form 3903, which also includes short explanations.

The full details of what can and cannot be deducted appear in IRS Pub. 521.

Student Loan expenses

If you took a student loan, or paid for a dependent's student loan, you can typically deduct the interest paid and other expenses related to the loan. More details and a worksheet used to calculate the allowed deduction can be found in the instructions for form 1040NR.

Invest in an IRA for retirement

Graduate students typically don't think about saving for retirement, as they are just beginning their careers. This is a dear mistake - the early you start saving for retirement, the easier it will be for you to reach substantial amounts at an older age because of a compounded interest effect.

The government would like people to save for retirement, and incentivizes them to do so in the form of a tax benefit for people who put aside money every year in an IRA - an Individual Retirement Account. Putting money into an IRA means that you cannot access the money until a very late age. Many graduate students cannot afford to use the small income they get for such long term savings. If you can afford to save, however, it might be worth your while.

Several types of IRA accounts exist; the primary ones are referred to as a Traditional IRA and a Roth IRA.

Amounts of up to $5000 per year (for a single in 2009) can be put into a traditional IRA, and be deducted from your income. These amounts will later be taxed when you retire and take money out of the IRA account.

A Roth IRA, on the contrary, is an account where the money you put in today is not taxed when it is withdrawn at retirement. You cannot, however, deduct the investment from your current income.

Several rules guide how much money you can contribute every year and into which type of account. The general decision rule says that if you expect your retirement income to be higher than your income today, than you should opt for a Roth IRA. If your expected retirement income is lower than your income today, go for a traditional IRA.

The difference is when taxes are calculated - you would like to pay taxes when your income is lower and the tax rate on the income is also lower.

Saving for retirement and the optimal way of doing so is a big issue, and typically requires professional advice.

Domestic production activities

If you held a business in the US, or were a partly owner of a business that paid employees to produce real estate, software, film or perform engineering tasks in the US, you might be able to deduct additional amounts on those paid in your tax return.

Such a deduction might be relevant to architects, engineers and software developers who employ other people as part of a project.

Form 8903 is used to report such activities, and its details appear in the form 8903 instruction pages.

Additional write-in adjustments

Form 1040NR allows for additional deductions called "write-in" deductions which are just calculated into the total amount of deductions.

The list of such possible deductions and the method for reporting them on your tax return appear in the instructions for form 1040NR.

How valuable is your privacy?

How much money are you paying to maintain your privacy? How much should you get to let others pry into your private information?

I recently attended a talk by MIT's Catherine Tucker about the cost of privacy, from the perspective of advertisers. Prof. Tucker and her co-author checked how changes in privacy rules in Europe, regarding what information can be collected about online web surfers, affected the accuracy of advertising and the profits of advertisers.

They conclude that increasing the privacy of web consumers significantly lowers the profits of advertisers, since they are now less able to target their advertising. This might lead companies to increase their advertising (to make sure they reach customers), or raise their prices, to compensate for lowered profits. In both cases the effect of increased privacy will eventually cost consumers more money, or create more annoyance.

Where else might privacy cost us money, and how much? Think for example about Tax Evasion.
Tax evasion does not mean handling your taxes smartly. It means hiding income and illegally not paying taxes.

It is estimated that the tax gap (the amount of tax illegally not paid) in the US is about 345 billion dollars ($ USD 345B), which is 15%-17% of total tax that should be collected in the US, while in Israel is it estimated at NIS 70-80 billion (roughly $20B).

What does that means? That on average Americans could pay roughly $2000 less in taxes every year, while Israelis could pay $4000 less per year.

Wouldn't you love to pay $2000-$4000 less in taxes per year? Would you be willing to let go of private information for this and let the IRS track all of your life?

I suspect many people would initially say "yes", if the offer is tempting enough.

So, why do people evade paying their taxes? The simple answer is the same for another famous question - because they can.
And why can they? Because the ability of a country to enforce tax rules depends on the information it has. Had the IRS had all of the financial transaction information it could have (including where do coins and notes go, every receipt, etc.), it would be able to track people who evade paying taxes with ease, and charge them this amount.

In reality, however, the IRS is required to spend money to find out more information (for auditing people, for example), so the harder people make it to gather the information, the less incentive the IRS has to go after them, and law abiding citizens end up paying more taxes.

Lets suppose the IRS comes to you and gives you an offer: "Give me direct access to all your bank accounts, credit card transactions etc., and I'll give you back $2000 every year".

As a law abiding citizen, you should have no problem giving up your financial privacy (assuming nothing else is done with it, of course), and especially for such a big refund - the result would be that whoever maintains his privacy will signal that he has "something to hide". He should then pay the extra $2000 per year, and get audited. Many of these people will turn out to be tax evaders, and will pay more taxes.

So, would you be willing to give up your privacy for some cash and catching criminals?

Why the quality of coffee is important to world peace.

When often being asked by locals here why I care so much about the taste of what I drink, it's hard for me to even explain. Luckily, smarter men have provided a good answer, to be found in this week's Economist, a letter to the editor:

A friendly brew

SIR – You told a tale of how “hummus can promote peace”, when Israeli and Syrian negotiators came together in a “moment of heartfelt agreement” that the chickpea dip served to them by their American hosts tasted awful (“An emotive issue”, November 14th). After the 1991 Madrid peace conference, Arab and Israeli negotiators convened at America’s State Department to start talks, but the different Arab delegations couldn’t agree on the modalities for actually talking to the Israelis.

One morning, after several days of unsuccessful attempts to break the ice and get the Jordanian-Palestinian delegation to sit at the same table with the Israelis, the habitual American coffee-cart was wheeled in. After both Abd al-Salam Majali, the senior Jordanian delegate, and myself had tasted the unappetising brew that goes for coffee in America, I remarked: “Don’t you think that this coffee is terrible?”, to which he enthusiastically agreed. From that moment on the talks started, culminating eventually in the Israeli-Jordanian peace treaty.

Zalman Shoval
Former Israeli ambassador to the United States
Tel Aviv

Cheating for a better world.

Is bribing or lobbying always bad for society?

Consider the following scenario:

Alice and Bob are competing for a job, and Chris is interviewing them for that job.

The company at which Chris works has a very special interview process, designed to forecast how much each new employee will bring in in revenues each year.

If someone gets a score of 100 in the interview, he will bring in $100 worth of revenues every year, assuming he is hired. If the score is 85, he will bring in $85 and so forth.

Now, Alice and Bob went through the interviews, Alice got a score of 85, and Bob a score of 100.
Bob is hired, and gets a salary of $90 each year, so the company makes a profit of $10 each year from hiring Bob.

What happens if Chris, who was a new interviewer, made a mistake in the interview?
For example, say Alice's real score should have been 95 - she's just bad at interviews - and Bob should have been a 90 - he's just a big smiley blabber mouth, but not really a professional.

This has caused the company not to hire the best employee, and also to lose, or not make, money.

Alice, who knows her true score, could have offered Chris a small bribe (say $1 for each point), and increase her score above 100, and be hired.

The company would make a profit, paying $90 for someone bringing in $95, and Alice, who is the better candidate, will get the job.

So, although this example is highly simplistic, sometimes making people pay to show how good they trust they are makes the world a better place.

Cappucco? No prego.

This week I will be commemorating 7 months since I moved to the bay area.

Life has been mostly splendid here, with sunny days, polite people, mostly-functional public services system (10 months to pass a budget? Com'on), and very bad coffee.

Coffee here is so ridiculously bad that I actually thought about starting to prepare my own coffee. (If you've ever had me make you coffee you would know I make horrible coffee).

I was not much of a coffee drinker until the age of 21, and then I had my first Cappuccino in Italy. To my delight, I found it wasn't me who had a problem with coffee, it was Nescafe (or the local Israeli brand), which was problematic.

I became very fond of Cappuccinos, and strong black Arabic coffee (Calling it "Turkish" is just wrong...Turks drink mostly tea) with Cardamom.

A coffee snob indeed.

Whenever someone hears me complaining about coffee, the typical question is, "what's so wrong with Starbucks", or, if encountering the upper scale connoisseur wannabe "isn't Pete's just like in Italy"?

Well, it isn't, and for all those who asked, here's Ron's guide on how to ruin an expensive cup of Cappuccino in 7 simple steps:

1. Roasting - roast the coffee too much. Bitterness is not the goal, it's burntness. Try to keep as much as possible with the old American tradition of bad brewed coffee. I have heard several nicknames for brewed coffee. I am mostly fond with "sock juice", but "gutter juice" makes the cut as well.

2. Milk - when steaming the milk, make sure to heat it too much, beyond the desired 70 centigrade temperature. Heating the milk too much will achieve two of the most desired American coffee goals - you will burn out any relic of flavor remaining in the roasted grains, and you will present the drinker with an exquisite burnt tongue sensation gift.

3. The cup - make sure to use an oversize cup. The locals here like their coffee as close to American cars as possible - large and of low quality. Quoting a friend who interviewed an Israeli entrepreneur once, "Israelis do not drink their coffee in buckets".

4. The cup #2 - Always serve your coffee in carton cups. This will allow you to transfer the warm (too hot) feeling to the cup holder, and will give a sense of urgency to leave the coffee shop - it is a well known fact that coffee should only be sipped a mile away from where it was poured.

5. A tea spoon - just don't invent those. Give your clientele disposable (organic compostable, of course) spoons, or better yet, small wooden stirrers. Since you steamed the milk too hot anyway, why would they like to endure on the best part of the Cappuccino - the leftover mix of foam, coffee and sugar.

6. Sugar - Assume no one uses it, and offer a variety of five (yes, 5!) types of low calorie sweeteners. Can anyone please tell me what's the difference between the pink, yellow, orange, blue and green ones? If I mix them, will it taste like m&m's in my coffee?

7. Sugar #2 - Try not to serve brown sugar. If the customers insist (those nasty snobs), serve "sugar in the raw" in a large open bowl, making sure it absorbs as much humidity as possible and sticks into large lumps. Coffee drinkers are known to be aggressive people and the best way to let them get rid of those aggressions is let them pound into bowls of sugar until they can get a teaspoon full of sugar in their cup. I have a one word hint for you: Demerara

So, let's suppose someone drop you in the bay area, and for some reason you insist on getting a good cup of coffee, where would that be?

Here's a short list of where not to go:

  1. Blue Bottle Bar(s) - This famed coffee company is the hottest "best" place in town. I have tried them 3 times in 2 branches. If you like your coffee burnt (but being served by someone who looks like a model), try the Mint alley branch in San Francisco. If you like it just burnt and standing in line 10 minutes for it, try the Hayes Valley branch.
  2. Any Starbucks branch - the coffee is just bad.
  3. Cafe Strada in Berkeley - The terrace is nice on a sunny day. The coffee is always awful.

Where should you go:

  1. Yali's Cafe at Berkeley (both the university and the town) - Owned by a Kibutznik, he makes sure to teach his employees how to make coffee. And at the UC campus they're all perky smiling students - what could be better?
  2. Cafe Del Doge in Palo Alto - this one realy tastes like in Italy. No wonder all Israeli VCs hang out there.
  3. Pete's - If you insist on Pete's, ask for a "traditional cappuccino" (no, it's not on the menu). Apparently the insiders know how to say "I know what good coffee is like" in Americanese.

- Ron

Rak Hayom! Rak Hayom!

Yes – I did disappear, and No – nothing bad has happened to me.

I am alive, and kicking all sorts of equilibrium problems. According to the UC Berkeley Economics department, you have not been through a real Zubur unless you’ve been applying the implicit function theorem on anything you can, in very explicit ways.

You would never imagine what Google images brings up when you look for "zubur"
(Anyone can suggest a good word for a “Zubur” in English?).

Seems like the best equilibrium I could find is writing this post at 2:29AM.

Kind of reminds me of undergraduate years, only without the uniform and the pool table.

But, tiny issues aside, I’d like to touch on a very important topic of marketing in this post – variety, and how it affects consumers. In my case, it’s very simple – it makes me terrified, it paralyzes me and makes me unable to decide.

I don’t get the fixation with variety here. The question isn’t of quality; it’s of amounts,

Quantities, Selection and Volume – The more, the merrier.

Comcast’s strongest selling point here is that they have more HD cannels than their competitor.
Does showing Law & Order in 100 channels instead of 90 make viewers happier?

Here’s a simple example of one of my favorite choices of a major food group – tomatoes (the others being beef and chocolate, in case you were wondering).

The choice is simple among Regular, Organic, Certified Fair Trade, Zero Emission, Heirloom and Certified Picked by Free Range Leprechauns tomatoes.

$5 per one, and believe me, it's after a discount

The ice cream aisle in my local Safeway is much larger than my apartment – and don’t get me started on the options for tortillas or cereal - I once even had to use a GPS to navigate out of the cereal aisle…

But, as always, something is rotten here.

The problem is, as a matter of fact, that things do not get rotten here for suspiciously long times.

Have you ever seen a lettuce that looks as fresh after 4 weeks (yes, four) as it looked the day it was bought? Would you trust an apple to be good after 3 weeks? A banana after 5?

All these are simple examples of how the truths of life change:

  • If it looks fresh, it will be cheap, is probably 3 weeks old and made of plastic.
  • If it looks half rotten, it’s probably organic, 2 days old, and you must eat it immediately or it dies within a day, but – it will make you healthy. The price, though, would be $5 per pound.

As a finishing point, I’d like to share with you a key finding in my latest research.

Based on a very biased research, which is extremely unscientific, I have reached an eye-opening flabbergasting conclusion – Americans do not cover their mouth when they yawn.

The only reasoning I could find for this phenomenon is that Americans want to boast the fact they can afford dental insurance, but who knows…

- Ron

I am not a number...yet...

For some obscure reason, “The Prisoner” was very popular in Israel when I was a kid. Something that has to do with reruns and nothing to do on long summer vacations.

I distinctly remember scenes with a giant white ball suffocating people trying to escape some place, and the main actor (No. 6), yelling at someone "I AM NOT A NUMBER!".
I wonder what he was on when he invented this ball. Probably something you can still get in Berkeley – actively or passively.

Giant white balls as prison guards - what happened to the good old personal touch
of a clubbing someone to death?

In the US, however, you wish you were a number. Until you are a number, you’re basically a nobody. And being a nobody is apparently worse than being somebody bad or with bad reputation.

What number would that be do you ask?

Is it a telephone number that makes you a somebody?
Certainly not.

Is it an ID number? A driver’s license number? A bank account number?
Any of those would be logical, so naturally they're not gonna work.

Today’s prize goes to the credit rating score, fondly known to locals as the FICO score, which I must admit sounds a little like a fu-k you score.
FICO stands for Fair, Isaac, & Co.. To me, “Fair Isaac” sounds like the typical name of a used cars salesman. Can’t you hear the jingles already?
“Come to Fair Isaac. We’ll give you 15% off of any car in stock, even those that actually work”.

Building your credit history in the US is easy. You just need a credit history to get one.

Yes - you need a good credit history to get credit, which builds you credit history. Catch 22 anyone?

People make very good use of their credit history in the US.
Want to rent an apartment for $30,000 a year? Show us you paid on time for all those $5 books on Amazon.
Want to buy a car for $15,000? Let’s make sure you’re actually using that 10% student discount on a $2.35 Cappuccino every day.
Some workplaces even use your credit report to decide whether to give you a job or not...

I think that when everyone is more afraid of losing their score than actually losing their credit card, it has officially turned into an Alice in Wonderland type of world.

Do you think that instead of a credit score, I can ask AmEx to send me a set of flamingos for my Croquet practice?

- Ron

My Precious (Metals)

Every new week begins with a recurring anxiety attack – will I make it to the weekend? Will I collect enough of the precious commodities needed to survive in San Francisco?

There are two very common commodities being used in the Bay Area – Plastic, and Quarter Dollar coins. Without any of them, you are doomed.

Plastic, apparently, is very cheap. So cheap that a company would prefer to issue you a new plastic card (preferably a credit card) and send it to you by mail, before even asking whether you need it or plan to use it. It’s even OK if they send it to the wrong guy…

I therefore have in my possession 5 different credit cards, some club member cards, and possibly a health insurance card of previous tenants in my apartment.

Anyone thinking “Identity Theft” right now is perfectly normal…

The American Express Card - Don't leave home without it, or we'll send you 3 more!

The source of my weekly anxiety, however, are those nasty little quarter coins.

Wash & Dry Laundry? 14 Quarters for one load. Imagine facing 3 loads a week. (I am a messy guy, I know).

Parking? $4 an hour (16 quarters!) into the meter.

Taking a Muni? 6 Quarters each way.

And so on and so on.

I even had a collector’s tip session from some friends – some use the “go into the bank and ask for $50 in quarters” technique. Others use the “Always ask for your change in quarters, and never give anyone yours – they are too rare to find…” technique.

My own technique (don’t tell anyone, I am sure there is some law against it) is to change dollar bills into quarters at a Muni station on my way home, without (here’s the tricky part), taking the Muni afterwards.

It is hard for me to describe the delight I take in standing for 5 minutes trying to make a machine accept very old and wrinkled bills. The only thing that beats that is watching the people stand in line behind me in patience. The (bizarre) culture of standing in line and enjoying it will require its own post, however.

The only other place in the world I am aware of which has a similar shortage of coins is Buenos Aires, where the Peso coin is in such a shortage that shops prefer to give you 2 pesos of change instead of 1 peso to save on their coins.

Extrapolating from Argentina's recent financial troubles and the current US crisis, the only conclusion is that quarter coins are to blame for Wall Street falling down.

A Quarter Coin, a.k.a, "The item that holds the nation by its balls"

My only tip for visitors is this - next time you see some guy begging for a quarter in the street, don’t turn him down thinking “poor homeless guy - he’s probably going to use it all for alcohol and drugs".

He might just want to park his Porsche, and at 16 quarters an hour, he would probably be happy to a $1 to quarter exchange rate…

- Ron

History in the making

Today I handed in my first Marketing Strategy problem set. It is a historical moment.

I haven't been kidnapped, neither by aliens, nor by the crazy party people on Halloween in the Castro district.

I haven't gone too drunk from all of the MBA events, nor have I opened a business consulting service for electronic engineering students.

I merely had no time to breathe, which is quite a change from what I used to do, where I didn't have time, but could catch my breath from time to time.

I recently found out the UC Berkeley Economics department is ranked between number 1 and 3 in the world (depending who you ask). Why does a poor Business School PhD like me care?

As all my classes are with the economics department, hanging around who may become potential Nobel laureates is nice, but time consuming.

It has been almost 10 weeks into the semester, and it ends within an extra 5 or so. I can't believe how many new things I learnt in such a short time, especially on the side of real life economics.

Turning to real history, I am feeling I am fortunate to witness history, having been in the US both on big Tuesday (party primaries day in early 2008), on a historic Super bowl, and on election day. It is sometimes surprising how history can play games with us, making the 4th of November a worldwide date of sharp changes.

I have never seen so many people so involved, interested, debating, hoping, worrying, and now, some of them celebrating.

I truly hope gay marriage isn't annulled here in California, but so far it seems the odds are against me. I could never understand people's ability to interfere with other people's lives...

Congrats to the winners. Let's hope my pension fund recovers its loses after this fall, no new war emerges with a non-friendly country, and that this blog doesn't go down into oblivion...

- Ron