As a student, you've got tuition bills and not a lot of income. Fortunately, you've also got access to a range of tax credits. Tax benefits for students.
No one ever complains about getting tax breaks. For busy, hardworking students, taking advantage of the tax benefits available can go a long way.
Taxes can be a complicated subject to follow, which is why it's best to focus on one area of your tax situation at a time and choose a reliable tax professional or software system to help you file if you are confused about any of the basics.
If you are a student and need to file taxes this year, be sure to keep these tax benefits in mind and see if you qualify.
The American Opportunity Credit
The American Opportunity Credit is an education-related tax credit available to students who are enrolled in an accredited university, college, vocational school.
This particular credit applies only to college students who are in their first four years of post-secondary education. It allows you to claim up to $2,500 per year.
First, the credit covers 100 percent of the first $2,000 of qualified tuition, required fees and qualified expenses. Then, it can cover 25 percent of the next $2,000 which comes out to an additional $500.
In order to receive this credit, you must be enrolled at least part-time for a minimum of one academic period which can begin during the tax year. The great thing about this credit is that 40 percent of it is refundable so you can receive $1,000 as a tax refund even if you don't owe taxes.
The Lifetime Learning Credit
The Lifetime Learning Credit is another education-related tax credit you can take advantage of if you qualify. Tax credits can be very beneficial because they lower your taxable income, which can decrease the amount of taxes you have to pay or increase the amount of your refund.
With the Lifetime Learning Credit, you must be enrolled or taking courses at an eligible education institutional for at least one academic period (can be semesters, trimesters, or quarters and can be beginning in the tax year) and be taking higher education courses to obtain a degree.
The credit can help you pay for undergraduate, graduate and professional degree courses. There is no limit on the number of years you can claim the credit and it is worth up to $2,000 per tax return.
To claim the full credit, your modified adjusted gross income (MAGI) must be $65,000 or less, if single, or $131,000 or less if you are married and filing jointly. You can still claim a partial credit if you're MAGI is between $55,000 and $65,000 if single and between $111,000 but less than $131,000 for married filed jointly.
To learn more about this credit and see if you qualify along with how to file, head over to the IRS website for more details.
Student Loan Interest Deduction
If you are in college (or even post-college) and paying off student loans, you may qualify for a student loan interest deduction which allows you to reduce your taxable income by up to $2,500 of the student loan interest you have paid for you, your spouse, or your dependent. This can also include the one-time "loan origination fee" charged by your lender.
To qualify for this deduction, you must meet certain requirements like paying interest on a commercial loan taken out solely for educational purposes and having an adjusted gross income of no more than $65,000 ($130,000 if married and filing jointly).
Tuitions and Fees Deduction
College is pretty expensive, but you'll be pleased to know that you can deduct some of the expenses you pay around tax time. For 2016 taxes, you can claim a tax deduction of up to $4,000 for qualifying tuition and fees you paid for you, your spouse or dependent.
With this deduction, you do not need to itemize to claim it on your tax return, but it always helps to hold on to all your receipts and keep track of all your education-related expenses.
Scholarships
Finally, you may be wondering if scholarships provide any tax benefits. Scholarships are highly sought-after because they can help fund the cost of higher education and minimize the amount of student loans you have to take out.
According to FinAid.org, most scholarships are not counted as taxable income as long as you are a degree candidate and the money is used to pay for expenses like tuition, required fees, books, etc.
Scholarship funds are usually taxable if they are used to pay for room and board or other living expenses while you are in school.
Applying for scholarships is a great way to supplement the costs of college in addition to some of the tax benefits which is why you should actively seek out private and public scholarship opportunities that you qualify for and make sure they are tax exempt.
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