Studies showcase that nearly 71% of the students who graduate after a four year of college, leave with a hefty student loan debt.
On average, a graduate who took a loan to pay for school usually walks out with a debt of approximately $37,000 to pay off. In totality, clearing your high school education can be a massive financial burden.
However, if you know about the various tax benefits that you can claim, you can enjoy a pleasant relief.
There is a plethora of tax deductions and credits available for students as well as the recent graduates. Some of the schemes are also available for families that have school-going children. Now, before we jump to the ten tax benefits that you can avail as a student, you need to understand the fundamental difference between a deduction and a tax credit. A tax credit is an amount that will decrease your tax amount to be paid.
On the other hand, the deduction will reduce your overall taxable income. So, now let’s get started with 15 tax
benefits which you can get as a college student.
American Opportunity Tax Credit
As per the American Opportunity Tax Credit (AOTC), you can avail an annual tax credit to the amount of $2,500 per eligible student for your qualified education expenses. These expenses include your tuition fee primarily. In case, your tax liability is already low, you owe nothing to the IRS, and you can avail 40% of the amount as credit in cash refunded back to you.
So, if you avail this credit, this would mean a saving of $1,000. However, to avail this credit, you or your dependent child must be pursuing a degree course and must be enrolled in it at least half time. Also, know that the credit can be applied only for four years. So, if you take longer than that to complete your degree course, you will not be eligible for the tax credit.
Further, to avail the credit, your taxable income must be $80,000 or less as an individual. For married couples, this limit is $160,000. Lisa, who now works as an online assignment help provider and help students to buy college essays. She says that at the time of her college, she took advantage of this tax benefit.
Lifetime Learning Credit
Your LLC is worth up to $2,000. This is a qualified educational expense but isn’t refundable. So, if your credit showcases your tax liability to zero, you will not get your money back.
However, there is no limit on the period for you to claim your LLC. To avail this benefit, the eligibility criteria are the same. You have to be enrolled in an approved university or college for a minimum of one academic period during your tax year. Further, your income must not be over $65,000 if you are an individual. For couples, this limit is $131,000.
Tuition and Fees Deduction
Under this deduction, you can avail $4,000 on your tax return. This will reduce your overall taxable income. But please note that since it is a deduction and not a refundable credit, you wouldn’t get a money-back, in case, you have zero tax liability. This deduction is available for a dependent student, spouse of a student and a student himself. However, please note that this expense must be linked to your education and cannot include any living cost.
For this deduction, your income must be under $80,000 for individuals and under $160,000 for a couple. Savita, who works with PaperDoers and offers college research paper writing service. She says that during her student days, she made full use of this tax deduction.
Student Loan Interest Tax Deduction
For a student, parent of a student, if any loan is taken, a deduction on that loan up to an amount of $2500 is available on the interest paid over the course of the year. In case an additional interest amount is paid, you a get a deduction on that too. In order to avail this deduction, your income must be under $80,000 for individuals and under $160,000 for a couple.
File even if you don’t have to.
The pre-requisite is that you ought to file a tax return only if you reach a level of taxable income. However, you must file a return, even if you do not fall under the category of taxable income. This is because there are times when you’ll be due for a refund. This happens if your employer withheld taxes from your pay. Shaina, who is doing best financial modeling course shares her opinion stating that while she was in college, she always made it a point to file her return and that helped her save a lot from the refund amount she got.
Consider going alone
As a college student, you might be dependent on your parent, but from the perspective of tax benefit, you must always consider going alone. So, if you file your return, you will be eligible for far more benefits. Sandeep, who works with TFTH and offers assignment help. He says his parents earn too much to qualify for a deduction, so for him to save, it was best to file independently.
Get a refund for work-study.
Unlike the scholarships or the grants, the money that you earn from a work-study job is taxable. But it is not all that bad. The school will mostly withhold some portion for taxes from your checks. So, when you file a return, there is a chance that you’ll get a refund.
Pay college expenses tax-free
You should know about two types of college savings accounts, i.e. the Coverdell Education Savings Accounts and the 529 plans. In both these type of accounts, the money is tax-free. What’s better is that you can also withdraw this money tax-free, if it is used for paying education expenses.
In a crunch, tap the IRA.
Taking an early withdrawal from the retirement fund isn’t always a good idea. If you do that, you’ll not only be taxed on cash but will also have to bear a penalty of 10%. Satyam works with TAE, and he gets multiple requests every day from students who want accounting homework help. He shares his experience stating that while he was in college, his father withdrew the money for paying the college expenses and so they were not liable for a penalty of 10%.
Lastly, when you attend college in a state different from your parent’s home, do ensure that you are paying taxes from income in both states. In some cases, the state where you have a job might only charge a little tax or no tax at all. So, be aware, and play wisely.
Sangeeta who did a SEO PowerSuite Review for DTC says that college can be a bit expensive however, the government always offers some respite in the form of tax benefits. So, keep in mind these ten tax benefits, and you’ll save a lot in your tax bill!