It’s that time of year again! Tax season! W-2s have arrived. You might be hurriedly filing because you know you’re getting a refund. Or perhaps you’re procrastinating because you have to pay in. Or you’ve blocked it from your mind because you don’t know where to begin. Fortunately for students, there are plenty of ways the government is trying to cut you a break via your tax return. That means money in your pocket. We’ve consulted with Chris Strand, Minnesota School of Business Accounting Program Chair, who whipped up this little guide of tax tips for college students.
“When congress makes federal tax laws, they usually do so with more than just collecting revenues in mind. They also like to build into the laws carrots and sticks. They do this in order to reward behavior that is thought to be good for our economy and society and discourage behavior that is not. This is good news for college students!” Chris said. “There are several items in the tax code that are specifically intended to make higher education cheaper and more accessible.” Chris provides a brief description of the four most significant provisions, though there are plenty more out there as well.
The American Opportunity Credit
This is the granddaddy of higher education tax benefits. This is a tax credit of $2,500 per year for up to four years. The credit can be applied against any tuition and fees paid during the tax year. A tax credit is a direct dollar per dollar reduction in the amount of taxes you have to pay. It’s as if the federal government is paying $2,500 of your tuition each year.
Lifetime Learning Credit
This is $2,000 credit that can be taken over the course of a taxpayer’s lifetime. It is often times applied in instances where the American Opportunity Credit cannot be fully applied in a particular year.
Tuition and Fees Deduction
This is a deduction of up to $4,000 for tuition and fees paid in the tax year. A deduction is not a dollar for dollar reduction in the amount of taxes you owe (like a credit), but rather it’s a reduction to the amount of your income that is subject to tax.
Student Loan Interest Deduction
Like the Tuition and Fees deduction, this deduction reduces the amount of your income that is subject to tax. This deduction has a limit of $2,500 per year.
In addition to these “big four” tax savings opportunities, the IRS code has several other provisions to make a college education more affordable. These include scholarship exclusions to income, tax deferred education savings plans, and employment related education deductions. For more details on these and other provisions please visit the IRS web site.
*Thanks for the tips, Chris!