As you begin your college education, you must start thinking about how to file your taxes. It can be challenging to navigate the complex US tax code while also balancing your course load, part-time job, and student loans. Although some colleges have a student center or office with professionals who can assist you with your taxes, many don’t, which leaves you to figure out the process on your own.
Working with a tax professional at your college or a financial services firm will ensure you take advantage of any tax deductions and credits you might qualify for. In fact, filing your tax returns correctly could mean you’ll get some money back. Below are four tax tips for students to help you maximize your potential tax refund:
1. Determine Dependency
Before you begin to pay your taxes on your own, you will need to talk to your parents or guardians. You should ask your parents if they will include you as a dependent on their tax returns. If they plan to, you will have to explore with them whether it is beneficial for them to claim you as a dependent on their returns. If they claim you as a dependent on their tax returns, it affects the tax credits and deductions you may claim on your own return.
Parents can claim children as dependents until they are 19 years old. But if you’re a full-time student, they may claim you as a dependent until you are 24 years old. There are also other requirements, such as how much support your parents offer vs. how much you support yourself. It’s important to evaluate what kind of tax breaks are available for each option and how you can save the most money overall.
2. Apply for Scholarships
In many cases, scholarships give you money to help you pay for college and are tax-free. Unlike money you get from a job, scholarships are not considered taxable income when you calculate how much you owe on your taxes.
For information about what scholarships you might qualify for, check with your college’s financial aid office. You can also browse scholarship websites and search for opportunities from businesses or nonprofit organizations.
3. Seek the American Opportunity Credit
The American Opportunity Credit (AOC) allows you to get up to $2,500 back for paying tuition, fees, and other expenses during the year. The AOC is available to you if you are enrolled at least half-time in a postsecondary institution. It’s only available to students who have not completed the first four years of their postsecondary education before the start of the tax year. If your parents are extremely high earners, they may not get the full credit benefit.
4. Take Advantage of the Lifetime Learning Credit
You can use the Lifetime Learning Credit (LLC) of up to $2,000 to offset the cost of qualified education expenses (QEEs) you incurred as an eligible student. Students who are eligible to receive the credit are those who are enrolled in one or more courses at a recognized educational institution. The Lifetime Learning Credit is available for qualified expenses paid during the tax year or in the first three months of the following year.
There are fewer requirements for using a Lifetime Learning Credit. You do not need to be enrolled at least half-time in college, and you can claim the LLC for more than four years. If the taxpayer already claimed the American Opportunity Credit (AOC), they may not be eligible to claim the LLC.
Small Steps Can Have Big Tax Impact
As a student, you have a lot on your plate, but you don’t have to feel intimidated or anxious when you are ready to file your tax return. Knowing how to get the most from your refund can help you feel empowered and put some extra bucks in your pocket this year.