Let’s face it, higher education in the United States is notoriously expensive. Between books, class fees, tuition, transportation, and lodging, it’s no surprise that the stereotypical American college student is depicted as broke, starving, and surviving off of ramen noodles. Truthfully, everyone has a different college experience, even so, everyone can benefit from tax breaks.
If you’re a student, prospective, current, or future, there’s a good chance that you’re eligible (or may be eligible) for certain tax breaks and deductions. Depending on your specific circumstances, you might qualify for a lot more than you realize. As a general rule of thumb, we as a society try to help students in any way that we can, and the IRS is no different. There are opportunities out there. Sometimes it’s just about knowing where to look and who to ask.
Understanding Your Eligibility: What Exactly Can You Deduct?
Students may avoid looking into tax breaks because they’re certain they won’t qualify. At the same time, many students don’t even realize that more than a handful of their daily purchases are eligible for write-offs. On top of purchases that you can write off, the government has many credits, programs, and savings opportunities designed explicitly for students. Listed below are a few examples:
The Lifetime Learning Tax Credit: The Lifetime Learning Tax Credit (LLC) is available for those who are currently enrolled in college. This particular credit can be worth as much as $2,000 per tax return. This credit appeals to those who aren’t attending college full-time. You don’t even have to attend college part-time to be eligible. At the same time, this credit is not refundable and is not issued as a refund.
Tax Breaks on Scholarships and Other Assistance: A significant number of students rely on grants, assistance, and scholarships to help afford their education. However, just because this assistance is granted for education, doesn’t mean it can’t still be subject to taxation. Depending on the nature of the assistance, you might be eligible for certain tax breaks and/or discounts on school-related fees.
Employer-Provided Educational Assistance: Many students who are enrolled in college are also part of the workforce, either part-time or full-time. While employer-provided educational assistance is not technically a tax credit, it can sometimes result in a tax break. If you are a working student, you should be aware of your company’s education policies and programs. There are many businesses, especially larger national chains, that offer a lot of different assistance opportunities. If you’re unsure of where to begin your search for education assistance, the workplace is often an ideal starting point.
In addition to the various plans, credits, and breaks available to students, there are also plenty of opportunities to write off expenses. It is worth noting that in recent years, many purchases that were previously eligible no longer qualify. For instance, in 2020 tuition and fees were considered no longer deductible. Nevertheless, student loan interest is still eligible for write-offs. This specific college expense deduction lets you reduce your taxable income by up to $2,500 for qualified student interest paid during the year.
What Does Not Qualify and What Cannot Be Deducted
While it’s important to know what expenses qualify for deductions, you should also be aware of what doesn’t. In general, insurance, medical expenses, transportation, and living expenses are not qualified expenses for education credit. Likewise, to receive potential credits, you must be enrolled in courses that are for credit. This means that classes you are auditing or classes you are enrolled in that are not “for credit” are not eligible for education discounts/credits.
As is true with most things in life, there are always exceptions to rules. If you’re not certain about your tax break or credit options, don’t hesitate to research and ask questions. A lot of times you can also retain personalized help from the people employed at your university. Sometimes some deductions and programs are specific to your campus and/or school. If you want to cover all of your bases, you should speak with someone at your university. They can often help guide you to financial opportunities you otherwise would never have known about.
Always Keep Your Documentation
You should always keep important documentation, especially documents relating to education. It might seem like a waste of space; however, you’d be surprised how many students often miss out on credits, breaks, and deductions because they are unable to locate the proper documentation. On the contrary, students who are actively searching for potential breaks and discounts should always maintain their documentation to ensure they’re able to produce it when necessary. The last thing you want to do is go through the motions, only to find out that you’re missing crucial documentation or records needed to grant you credit.
When To Consult a Professional
A lot of college students are understandably reluctant to enlist professional help. After all, with so many responsibilities to keep track of, trying to find a tax professional on top of everything else can feel like a major challenge and a waste of time. However, for many students, their inability to capitalize on tax breaks and credits isn’t due to a lack of qualification, but more so a lack of awareness.
The internet can only tell you so much. In many cases, it helps to have a professional on your side who understands important details about your finances and other pertinent information. Bottom line, if you’re unsure about how to get started, it never hurts to have a conversation with a reputable professional, even if you don’t ultimately retain their services.
Don’t Miss Out on Tax Breaks
Being a student is hard enough, and often requires lots of financial sacrifices. You owe it to yourself to, at a minimum, explore your options. Even if you, yourself, don’t choose to move forward, the knowledge you gain may come in handy in the future. As always, keep your options open, and don’t miss out on opportunities to increase your financial literacy. Just because you’re a college student, doesn’t mean you can’t work towards achieving financial goals.
At McGrant Tax And Bookkeeping, we are here to help answer all your questions regarding your tax deductions as your primary bookkeeper in Charlotte NC. Please feel free to contact us today at any of our two locations or visit our website https://mcgranttax.com and book an online or physical appointment.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her attorney, business advisor, or tax advisor concerning matters referenced in this post. McGrant Tax and Bookkeeping assumes no liability for actions taken in reliance upon the information contained herein.