4 Must-Know Tax Credit and Deduction Tips for Students
All of these deductions and credits require you to attend an accredited institution, and these tax advantages cannot be claimed if you are listed as a dependent on someone else's income tax return. Discuss any possible tax credits and deductions with your tax professional or accountant to determine what other benefits you can earn when going to college.
American Opportunity Tax Credit
As of 2015, the American Opportunity Tax Credit credits students with up to $2,500 per year for four years of higher education. The person's adjusted gross income must remain less than $80,000, or less than $160,000 for couples filing a joint return. This tax credit also works for taxpayers who owe no tax after deductions. Students may count expenses related to required course materials as qualifying expenses for the credit. The person or third party who pays the actual expenses receives the tax credit. You must pursue a college degree to earn this credit.
Tuition and Fees Deduction
Reduce your income subject to income tax by up to $4,000 by deducting tuition and fees. Qualified expenses that go towards this deduction include tuition costs to attend the course, activity fees levied on students regardless of the course load, and necessary course-related expenses such as equipment fees, lab fees and textbooks. You cannot claim expenses for this deduction as part of the American Opportunity Tax Credit unless your qualified higher education expenses reach higher than $4,000.
Student Loan Interest Deduction
If your modified adjusted gross income is under $75,000, you may deduct up to $2,500 in student loan interest paid in one tax year. You can claim this deduction even without itemizing your deductions on IRS Form 1040, Schedule A. Claim this deduction on required and voluntary interest payments made on a qualified student loan you received solely to pay for educational expenses.
Lifetime Learning Credit
The Lifetime Learning Credit works for students who make less than $64,000 per year for a modified adjusted gross income. You may earn a credit of up to $2,000 per year for as many years as you attend college. You could also use this credit for courses necessary to improve your job skills. You do not have to pursue a degree to receive the Lifetime Learning Credit, meaning you can attend noncredit, continuing education classes.
There are several tax credits and deductions that students can often claim when it comes time to file income taxes at the beginning of each calendar year. Tax deductions reduce the amount of taxable income, while tax credits lower the amount of income tax you owe the Internal Revenue Service. Find out four of the best tax credits and deductions for students pursuing a higher education degree.