With the high cost of tuition, students are always trying to find ways to save money. One way for students to cut corners is to prepare their own taxes. While it may seem like a great way to save a couple hundred dollars in tax preparation fees, it’s possible these same students are leaving thousands of dollars on the table. Below are some tax savings tips students may not be aware of:
Education Credits (Form 8863):
The names have changed over the years but the benefits remain the same. The American Opportunity credit allows students to take a credit of up to $2,500 for qualified higher education expenses, including tuition and books. Up to $1,000 of this credit is refundable, meaning even if you don’t owe tax, you could still receive a “refund.” The credit starts getting phased out at income levels of $80,000 for single filing taxpayers and $160,000 for joint filing taxpayers, but most students are not generating that amount of income.
For students that have completed four years of undergraduate education, the Lifetime Learning credit is another option. It may be used for graduate school and professional degree courses, but may only be used for tuition and fees, not books, room and board, and other expenses that may be included under the American Opportunity credit. This credit gets phased out a little earlier, at income levels of $52,000 for single filing taxpayers and $104,000 for joint filers.
Tuition and Fees Tax Deduction (Form 8917):
This deduction allows up to $4,000 in tuition and fees expenses to be subtracted from a taxpayer’s income, resulting in a lower calculated tax liability. There are limits as to who qualifies and what expenses are allowed to be deducted, but this is another option for taxpayers who may not qualify for the education credits above.
Student Loan Interest Deduction (Line 33):
While many students who receive student loans don’t start paying off their loans until after graduation, some begin the process earlier. For those more ambitious students, up to $2,500 of student loan interest paid off during the year can be deducted from the taxpayer’s income, similar to the process for the tuition and fees deduction described above.
Earned Income Credit (Line 64)/Schedule EIC):
It’s common for college students to make little to no money, which while bad for the wallet, can be good news for the earned income credit. There are some rules that need to be followed, but generally speaking, if you are a lower income making individual ($13,980 if unmarried and no children), you should qualify for the earned income credit, which likely produces money in your pocket. The earned income credit is also refundable, which again means you would be entitled to receive it regardless of whether you have a tax liability or not.
While the tax saving devices described above are by no means an exhaustive list, they are a few common tax saving tools for college students, or recently graduate college students, looking to save some money by filing their own taxes.
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