Tips for filing taxes as a student
Tax tips for students
College brings with it many adult responsibilities you may have never had to encounter; doing your own laundry, paying all your own bills, and for many, completing a tax return for the first time. Filing taxes as a student, especially if it’s the first time you have have to file, can be a daunting task. We hope this post provides some tax tips for students in college that may feel intimidated by the process.
Have other student tax filing questions? Be sure to visit our tax filing guide for college students.
But first, determine dependency…
The first step in preparing your own taxes will, ironically, require a conversation with your parents, or any guardians you may have. This is necessary because the first thing you should determine is whether they will claim you as a dependent on their tax returns. If they are, it affects some of the credits and/or deductions that you may claim on your own return.
Generally, a parent can claim you as a dependent until age 19, but if you are a full-time student, they can claim you as a dependent until age 24. There are other requirements, including how much support you provide for yourself or your parents provide for you. If your parents do qualify to claim you as a dependent, you will need to discuss with them, using the other information provided below, whether it’s beneficial for them to claim you as a dependent.
Education credits and deductions
American Opportunity Credit
The American Opportunity Credit (AOC) allows for a maximum credit of up to $2,500 for the cost of tuition, fees, and course materials paid during the year. Additionally, up to 40% ($1,000) of the credit may be refundable. The AOC is available to a you if you’re enrolled at least half-time at a post-secondary institution. The credit is only available if the student has not completed the first four years of postsecondary education before the beginning of the tax year. Therefore, it is generally not available for graduate students.
Since the credit is available for taxpayers that have a dependent earning an education, if your parents claim you as a dependent, they could claim this credit. Additionally, there is a phaseout for the credit that begins as $80,000 ($160,000 if filing MFJ). So, if your parents are high earners they may not receive the full benefit of the credit. This will be one issue to look at when determining whether they should claim you as a dependent.
Lifetime Learning Credit
The Lifetime Learning Credit (LLC) of $2,000 is available for qualifying education expenses (QEEs) paid for an eligible student. For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution. The expenses must be for an academic period that begins during the tax year or during the first three months of the following tax year.
As you can see, there are fewer requirements for the LLC. For example, you are not required to be enrolled at least half-time, and the LLC can be claimed for more than four years. Additionally, the taxpayer may not claim the LLC if they are already claiming the AOC. Under the Consolidated Appropriations Act (CAA21), starting in 2021, the phaseout for the lifetime learning credit is the same as for the American Opportunity Credit. Additionally, after 2021, more people are eligible for the Lifetime Learning Credit. Specifically, the phase out range for this credit, which carries a value of up to $2,000, increased from $80,000 to $90,000, and $160,000 to $180,000 for joint tax filers.
Tuition and fees deduction (not available after tax year 2020)
The tuition and fees deduction was an adjustment to income if you incurred qualified education expenses for you, your spouse, or your dependent used before tax year 2020. Such expenses must have been required for enrollment or attendance at an eligible educational institution. The deduction was 100% of qualified higher education expenses with a maximum of $4,000, $2,000, or $0, depending on the amount of your modified AGI and filing status. The phaseout for this deduction began at $65,000 ($130,000 for MFJ) for 2020.
Prior to 2020, you could generally claim the tuition and related expenses deduction if you paid qualifying education expenses for higher education, paid the education expense for an eligible student, and the eligible student was you, your spouse, or your dependent. Just as with the other credits, you could not claim this deduction if you had claimed the AOC or LLC. Additionally, to claim the credit, you can’t be a dependent on your parents’ return, and you have paid the expenses yourself. Therefore, if your parents claimed you as a dependent, but you paid the expenses, neither of you could have claimed the deduction. The same rule apply if they did not claim you as a dependent, but they paid the expenses.
Get tax help
Learning how to file taxes as a student can be difficult and confusing. Make an appointment with one our tax professionals today and they can walk you through the decision-making process to get the greatest tax benefit for you and anyone that may qualify to claim you as a dependent.
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