Tax Breaks that Every Student Needs to Know About
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This past weekend, I had the wonderful opportunity of filing my taxes for the first time on my own. Although this could have been a very frustrating and stressful process, I actually enjoyed it quite a bit. It was a little difficult to pick which software program to use. In the end, though, I chose TaxSlayer. The program was easy to use and cost me a grand total of $10 (that includes my federal return and two state returns!). Needless to say, that is way cheaper than the $60 I would have had to pay to file two state returns with H&R Block’s TaxCut. I also tried TaxAct, but the program showed my receiving less money and owing more money than the other programs did. Anyway, when it was all said and done, I ended up with a $3100 refund that ought to arrive within the next week or so! That is not a bad deal.
The biggest reason for my large refund this year came from the education credit I claimed. It turns out that there are actually several tax incentives for students, and knowing about them can save you big time. Though there may be others I am unaware of, the following list includes the most common tax incentives for students and some basic eligibility requirements for them. Make sure that you check the IRS website, especially this IRS publication for students, to be certain that you qualify for the particular credit you are looking at. Remember, you can only claim one credit, and if you do claim a credit you are not eligible for the tuition deducation. The credits, however, will typically give you more money than the deduction will. Finally, remember that these credits are only given to the person who paid the tuition, so if your parents are claiming you as a dependent, they will receive the credit and not you.
1) The Hope Credit–The Hope Credit is offered to students enrolled at last half time in a degree or credential-seeking program. The students, however, must be in the first two years of post-secondary study to claim this credit. Students qualifying for the Hope Credit will receive 100% of their first $1200 of qualifying college expenses and 50% of their next $1200 of qualifying expenses, for a total of up to $1800. If you live in a Midwestern Disaster Area, you may be eligible for a larger credit, but if you make $58,000 a year or more or your filing status is married filing separately, you may not be eligible for the credit. If you are eligible for this credit, the Hope Credit will probably be your best bet.
2) The Lifetime Learning Credit–This is the credit I was eligible for this year. This credit is available to anyone enrolled in any classes at a qualifying postsecondary institution. This credit is available for any year of study. The Lifetime Learning Credit pays 20% of tuition and fees up to $10,000. Therefore, you can receive a maximum of $2000 from this credit. If you make $58,000 or more, you may not be eligible for this credit. You are also ineligible if you filing status is married filing separately. You could be eligible for a higher credit, though, if you are a student in a Midwestern Disaster Area.
3) Tuition and Fees Deduction–If you make too much money to claim the Hope or Lifetime Learning Credits, you can still claim the tuition and fees deduction. This deduction will allow you to reduce your taxable income by up to $4000. Remember, though, that a $4000 does not actually decrease the amount of taxes you pay by $4000 like a credit would. Instead, it reduces the amount of income you made that can be taxed. So, if you are in the 10% tax bracket, your taxes would be decreased by $400 dollars. For this reason, you should really make sure you are not eligible for an education credit before you claim the deduction.
4) Student Loan Interest Deduction–This deduction allows you to reduce the amount of your taxable income by up to $2500 based on how much interest you paid toward a qualifying student loan. To claim this deduction, you must have been enrolled at least half-time at a qualifying post-secondary institution. You are not eligible for this credit if you make more than $70,000 a year (or $145,000 per couple filing jointly). I believe that this deduction CAN be combined with the education credits or deduction.
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Thanks for sharing such great post, according to me this is the perfect post to get detailed info about taxes.