It’s tax time and if you’re a student, there is some good news for you. The Federal Government offers a host of tax credits and deductions for college and graduate students — or your families, if your parents still claim you on their tax returns. Here’s a look at some of the ways you can save money — or get money back — on your tax returns.
A tax credit directly reduces your tax liability, often times regardless of your income tax bracket.
>> Hope Scholarship Tax Credit
If your parents claim you as a dependent, they can get a tax credit of up to $1,500 per year toward the first two years of college. To be eligible, your parents must have paid at least that much toward tuition and fees for your education expenses, and you must be enrolled at least part-time in an accredited degree program. The credit phases out for individuals with a gross adjusted income of more than $50,000 a year ($100,000 per year for a couple filing jointly.)
For more information, see the IRS webpage on Education Credits and consult with the person preparing your tax return.
>> Lifetime Learning Tax Credits
If you pay for your education costs yourself, you may claim up to $2,000, or 20% of allowable education expenses. In other words, to claim the full $2,000 credit, you must have paid at least $10,000 in tuition and fees. If you paid only $5,000 in tuition and fees, you could claim only a $1,000 credit.
Unlike the Hope Credit, you don’t need to be enrolled at least part-time. Allowable expenses are tuition and fees; books, supplies and living expenses are excluded. If your parents pay for at least half of your schooling and still claim you as a dependent, they are entitled to the credit on their tax returns.
You cannot claim both the Hope and the Lifetime Learning Tax Credit in the same year.
For more information, visit the IRS webpage on Lifetime Learning Tax Credits or discuss your eligibility with your accountant.
A tax deduction is a write-off or reduction in your gross income on which tax is calculated. A deduction reduces your tax burden by lowering your income bracket.
>> College Tuition Deduction
If you pay for college tuition and fees for yourself, your spouse, or your dependents, you may be able to deduct up to $4,000 of your total allowable expenses. This deduction does not have to be itemized. The deduction is phased out, starting with gross adjusted incomes of more than $65,000 per year for single filers or $130,000 for couples filing jointly.
You can not claim a deduction for any expenses paid with earnings from a college savings account, such as a 529 Plan or a Coverdell Education Savings Account (also known as an Education IRA).
You cannot claim the deduction in same year that you claim the Hope or the Lifetime Learning Tax Credit.
>> Student Loan Interest Deduction
If you are repaying student loans for yourself, your spouse or your (claimed) dependent, you may be eligible to deduct up to $2,500 of the interest paid. You must have paid interest on a qualified student loan last year and have a gross adjusted income of less than $70,000 ($145,000 if you are married filing jointly). You are not eligible for the deduction if your filing status is married filing separately.
To learn more about deducting your student loan interest, see the IRS webpage on this topic or contact the person helping you to file your tax return.