Though some students earn free college tuition one way or another, the vast majority do not. Even for the ones that do, saving money as a student can truly be a difference-maker when it comes to drive, mentality, and even the ability to financially finish their education.
Many companies like Adobe, Microsoft, Apple, etc. offer student discounts on their services, and so does Uncle Sam.
Tax planning strategies are important in every walk of life, and college is no different. Part of that strategy, however, is often underutilized in the form of taking advantage of tax breaks for college students, and here is a look at three such breaks for college students.
1. American Opportunity Tax Credit
Totaling $10,000, the American Opportunity tax credit applies for any student who is enrolled at least half-time for any academic period during a given year.
The credit is for $2,500 and can be used four times, once per year. It can apply to tuition, and does for most, but also applies to fees and books, so those individuals receiving scholarships can still benefit from this credit.
The first $2,000 any student spends on tuition, books, or fees can be fully refunded with this credit, and then 25% of the next $2,000 dollars spent on the same, meaning if a student spent $4,000 on tuition or books, they would be eligible for $2,5000 of it via the tax credit. It is done so by filing an IRS Form 8863 with your form 1040.
2. 529 Plans
529 Plans are state-sponsored but generally fall on the shoulders of a parent of a student, rather than the student themselves, as they are savings plans, not one-off credits like the one mentioned above.
If you or a parent has money set aside for college, you can withdraw money from the plan completely tax-free if the purchases are to be made for tuition, fees, books, and even room and board or supplies (e.g. a computer), unlike the American Opportunity credit.
The amount is unlimited, so long as it can be proven that it was spent on education. If your parents are the ones in charge of your collegiate finances, let them know sooner than later about 529 plans, as they can mean serious, serious savings that can go to other types of enhancing the college experience like travel!
3. Student Loan Tax Deduction
So far, this article has looked at a tax break for current students, and a way to make your savings go farther due to a tax break.
The Student Loan Tax Deduction is for individuals to use after college, as it is related to interest on your loans. Each year, up to $2,500 in student loan interest can be claimed as tax-deductible on your taxes, and you do not have to itemize your return in order to get this break.
You do, however, have to be filing independently meaning if you’re on your parents’ taxes as a dependent then you will not be eligible for this break.
Be an accountant! It’s a great field with many benefits and a lot of demand and job security. Many jobs within the world of taxes pay lifelong dividends, but even at the educational level, the knowledge gained from being an accountant can ensure that every penny the IRS takes from you is justified by the law.
Whether you’re preparing for school, in school, or paying off your loans, there are tax credits available to help you out.