Did you know college students and their parents can take advantage of special tax breaks? These benefits are in the form of tax credits and deductions when you file your income tax return. A tax credit reduces the amount of income tax you have to pay. A tax deduction reduces the amount of your income that is taxed, which also typically lessens your tax bill. In other words, you could get a bigger tax refund!
Filing Your Taxes
Let’s back up a bit and start with the basics of filing your taxes. If you’re wondering if you should bother filing because you only work over the summer or a few hours part-time during the school year, the answer is YES! You aren’t required to file if your income is under $10,400 for tax year 2017, but you may be able to take advantage of those credits and deductions we mentioned.
1. Before you start, ask your parents if they will be claiming you as a dependent. Typically your parents can claim you as a dependent if they provide more than half of your support, which is often the case for college students. If they plan to claim you on their taxes, you will need to answer “yes” on your return when you are asked if someone else can claim you as a dependent.
2. Next you’ll need to gather your W2s and a list of your college expenses (tuition bills, credit card bills for textbooks, etc.). You can file with a paper form or online – the IRS offers a list of trusted “Free File” software. It might be a good idea to sit down with your parents while you complete your return in case you have any questions, especially if this is the first time you’ve filed your own tax return.
Note: if you’re receiving financial aid, TurboTax offers some tips on reporting financial aid on your income tax return.
Credits and Deductions
Education credits and deductions that may be available to you or your parents:
• The American Opportunity Credit. Allows students to claim up to $2,500 of college expenses for their first four years of postsecondary education. This includes tuition, fees, textbooks, supplies and other equipment.
• The Lifetime Learning Credit. Allows students or parents to claim a credit of up to $2,000 for qualified education expenses. There is no limit on the number of years this credit can be claimed, but you can only claim this or the American Opportunity Credit. The Lifetime Learning Credit may be useful to graduate students or those who are not working toward a degree.
Student Loan Interest Deduction
Once you are making payments on a qualified student loan (usually after you graduate), there is a special deduction allowed for the interest you’ve paid on your loan in the past year. Your lender should provide this statement in the mail or electronically each January. This deduction can reduce the amount of your income subject to tax by up to $2,500.
If you are beginning to pay back your student loan, you can usually login to your account to find all your repayment information. If you still have questions, or you’re not sure if you’re eligible for these credits and deductions, you can use the IRS’s Interactive Tax Assistant. You can also read the full descriptions of the credits and deductions, including income limits, on their website.
©Updated for tax year 2017