Yawn…It’s tax season…but don’t click away because you should read this! As a college student, you should want to take advantage of every possible tax credit or deduction you can find to save some money. All this information, from the IRS website*, is designed to help you, but always seek advice from a tax professional or accountant before filing your returns.
Student Tax Credits
There are two tax credits which you may be eligible for. A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. These benefits are:
- The American Opportunity Credit – This credit can help parents and students pay part of the cost of the first four years of college. Eligible taxpayers may qualify for the maximum annual credit per student. Generally, some of the credit is refundable, which means that you may be able to receive an amount back, even if you owe no taxes.
- The Lifetime Learning Credit – You may be able to claim a Lifetime Learning Credit for qualified education expenses. There is no limit on the number of years the Lifetime Learning Credit can be claimed. This is a nonrefundable credit, which means any excess will not be refunded to you.
You (or your parents if you are a dependent) may claim only one credit or deduction per year. Pick the deduction that best fits your situation and financial needs. If you have the choice, consult a tax professional for advice on which to choose – the American Opportunity Credit or the Lifetime Learning Credit.
Other Tax Benefits
There are 10 other types of benefits which could reduce the amount of income tax you may have to pay, although you generally cannot claim more than one of the benefits described in the list below for the same qualifying education expense.
- Deduct student loan interest;
- Receive tax-free treatment of a canceled student loan;
- Receive tax-free student loan repayment assistance;
- Deduct tuition and fees for education;
- Establish and contribute to a Coverdell Education Savings Account (ESA), which features tax-free earnings;
- Participate in a Qualified Tuition Program (QTP), which features tax-free earnings;
- Take early distributions from any type of IRA for education costs, without paying the 10% additional tax on early distributions;
- Cash in savings bonds for education costs without having to pay tax on the interest;
- Receive tax-free educational benefits from your employer; and
- Take a business deduction for work-related education.
You can find more information on all the above credits and benefits in IRS Publication 970 – Tax Benefits For Education.
We are not tax professionals and are not equipped to offer tax advice. The information in this blog post, provided by the IRS, is intended to be a guide only. Always consult a tax professional before filing your taxes.
*Source: IRS Tax Benefits For Education Publication 970 – http://www.irs.gov/pub/irs-pdf/p970.pdf