Tax Credit and Deduction Breaks for College Studentstax tips, tax breaks | March 02, 2017 | By Susannah McQuitty
Okay, hang with me – put down the highlighters, note cards, and midterm study guides for just a second, and let’s talk tax breaks for students. After all, couldn’t you use a bit more jingle in your pocket? Making sure you get all the possible tax credits and deductions is a lot easier than you might think, and the bigger refund would definitely bump spring break from good to great.
Not sure how credits and deductions work? Check out our blog on commonly confused tax terms for a little background, and let’s dig in.
Tax Credits for Students
The main credits for college students, or their parents, are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
The AOTC is only available for the first 4 years of higher education, but here’s the good news: The $2,500 credit is also refundable up to $1,000. That means that if the credit pays for everything you owe in taxes and then some, you could also qualify to get the “then some,” up to $1,000, as a refund.
There isn’t a limit to the number of years you can claim the LLC, so it can be applied to undergraduate, graduate, and professional degree courses. It’s worth up to $2,000, but the LLC is not a refundable credit. You won’t get anything extra after the credit covers your tax liability.
Now, there are a couple catches: First, you can only choose one of the credits (even if you’re eligible for both), so weigh your options and see what works best for you. You also have to be enrolled and paying qualified education expenses – tuition, fees, books and supplies – to claim a credit. Note that if your parents claim you as a dependent on their taxes, they’ll get the credit instead.
Tax Deductions for Students
A tax deduction minimizes the amount of your income you have to pay taxes on, so what kinds of expenses can you deduct?
One of the easiest deductions to claim is for tuition and fees, which can reduce your tax liability by up to $4,000. Even better, you don’t have to itemize to take advantage of the tuition and fees deduction, since it counts as an adjustment to your income. It’s important to note, though, that you can’t claim this deduction if you’re using one of the credits to pay for tuition and fees. The credits usually provide better tax benefits; however, there are times when the deduction can come in handy.
Tax Deductions for Graduates
Graduated with student debt? You can deduct up to $2,500 of student loan interest, including both required and voluntary interest payments (if you decide to pay extra interest and save a headache later, that’s deductible, too). Check out our Tax Guide for more information on student loan interest.
How will you figure out all this information when you file? Easy. For college expenses, you’ll receive Form 1098-T from your institution detailing your qualified expenses. For student loan interest paid during the tax year, you’ll receive Form 1098-E. Plus, when you file with 1040.com, all you have to do is plug in the requested information and start filing – which you can do in one sitting.
Between midterm studying and spring break planning, you don’t have to spend a ton of energy thinking about filing your taxes. That’s why we do what we do – making your taxes as easy as possible when you file with 1040.com.
So what are you planning for spring break? And how would some extra cash from your student tax credits and deductions boost your fun? Let us know below!