Time for a horrifying cultural detail that we are all too aware of as millennials (actually students of all ages): About 75 percent of college students graduate with $40,000 or more in debt to pay off. But come tax season, the government does feel sort of bad (I guess). And that’s probably why there are a few relief-giving tax credits snuck into our tax program that are available for us debt-burdened students and recent grads out there to utilize. So the best thing to do is know all you can about them, and then to take advantage!
The American Opportunity Tax Credit
This little tax credit can really help you out with your tuition payments. If you or your dependent qualifies for the American Opportunity Tax Credit then you (or your dependent) can receive an annual credit of $2,500 to be applied to educational expenses. If you do not owe the IRS, you can also receive up to 40% of the credit in cash refunded to you. This would result in roughly $1,000 dollars more in your bank account, which ain’t too shabby!
*Eligibility for AOTC: You or dependent must currently be pursuing a college degree and must be enrolled at least half-time. The American Opportunity Tax Credit can only be applied for four years of studies. This means that if it takes longer than four years for you or your dependent to complete their degree, the credit will only apply for four of those years. Additional eligibility requirement: your income must be $80,000 or less as an individual, or $160,000 for couples who are married and filing their taxes jointly. To claim AOTC, complete Form 8863 and attach it to your Form 1040 or 1040A.
The Lifetime Learning Credit
Worth up to $2,000, and also applicable to qualified educational expenses (such as tuition and fees), the LLC is a non-refundable tax credit. What this means is: If the credit brings your tax liability to zero, you will not get any money back, unlike the AOTC. However: Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit has no expiration date. If you pursue higher education throughout your professional life, you will always be eligible to apply for the LLC.
*Eligibility for LLC: You must be enrolled at a university or college. Also, you or your dependent has to be enrolled for a minimum of one academic period (such as a semester), during the tax year. Additional eligibility requirement: your income cannot exceed $65,000 if you’re single or $131,000 if you’re married and filing jointly. Like AOTC, to claim the LLC, you must complete Form 8863.
The tuition and fees deduction
This deductions allows you a deduction of up to $4,000 on your tax return, thus reducing your taxable income (woo!) Again, if your tax liability is zero, then you will not get any of that money back. This is because the tuition and fees deduction is a non-refundable credit.
Eligibility: If you are 1) a student, 2) spouse of a student, 3) the student is your dependent. Expenses deducted must directly involve educational expenditures and may not involve adjacent expenditures such as room-and-board. Additional eligibility requirement: you must make under $80,000 if you’re single or $160,000 if you are married and filing your taxes together. You can get the deduction even if you do not itemize your taxes.
Student loan interest tax deduction
All students, or parents of students, who made payments on a qualifying student loan are eligible to deduct up to $2,500 of the interest that you paid over the course of the year. If you made extra payments, then you also can deduct the extra interest that you paid off.
Eligibility: You or a dependent must have paid interest on a student loan this year. Your filing status must be single or married filing jointly; if you file your taxes as married filing separately, you are not eligible for this deduction. Additional eligibility requirement: Your income cannot exceed $80,000 if you’re single or $160,000 if you’re married. Loans that do not qualify include loans offered by a relative or friend or employer-offered loans. Use a student loan interest deduction calculator to calculate whether you do qualify for this tax break.
As a student, your financial situation can become pretty rough pretty fast (if it hasn’t already, that is). So you should make sure to catch the breaks where and when you can find them, and during the tax season, there are actually a few to catch. Make sure not to miss out on them! In addition to the four discussed above, there are some more educational money-saving opportunities this tax season that you may want to look into for reducing your tax bill and maximizing your refunds.
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