There are specific tax deductions and credits available to students and recent graduates. You can take advantage of these deductions and credits to reduce the amount you need to pay in taxes each year. These guidelines are only suggestions, and you should check with your parents and use software or go to a tax professional
to file your taxes. There are ways to save money on your taxes, but you do not want to lie or break any tax laws in order to qualify. If you end up with a refund, you should create a spending plan for your refund
, so you do not waste the money you get back.
1. Check Your Filing Status
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First you need to check to see if you can claim yourself when you file. If your parents have been paying for your support while you are in school they have the right to claim you as a dependent. If they do this you will not qualify for most of the tax credits listed. However, if they are helping you out, you should be willing to allow them to claim the credits. If you pay for the majority of your expenses on your own, they should not claim you as a dependent, and you should be able to take advantage of the credits yourself.
2. Education CreditsThe American Opportunity Credit is good for the first few years of undergraduate school and it allows you to claim a portion of your tuition costs each year. The credit is only good for the first four years of school and you can claim up to $2500 each year. Another credit you can claim is the Lifelong Learning Credit. This allows you to claim college expenses as well. You cannot claim it in conjunction with the American Opportunity Credit, for the same person. However if you are married you may claim one credit while your spouse claims the other. The total maximum for the Lifelong Learning Credit is used for the entire family, so if you claim it for both you and your spouse, you can only claim the total amount once.
3. Student Loan Interest DeductionIf you recently graduated or if you are paying the interest on your student loans while you are in school you will qualify for the student loan interest deduction. This is an above the line deduction, which means you are allowed to claim it even if you do not qualify to itemize on your taxes. Your lending institution should send you a 1098-E sometime in January that states how much interest you paid in the year. The amount you can deduct in 2011 is $2500.
4. Scholarships, Fellowships and AssistantshipsYou should check to see if you need to report any scholarships, fellowships or assistantships you receive on your tax return. Assistantships are usually reported as income, since you must work as part of the agreement, but you should check with your college to be sure. Scholarships and fellowships must be reported as unearned income on your taxes, for any amount you receive above the cost of tuition each year. You can contact your financial aid office to see if you fit this bill, but if you are getting a check at the beginning of the semester or having your housing costs covered by your scholarship, you may be responsible for reporting this on your taxes. The university or scholarship may send you a form, but even if they do not, it is your responsibility to report it.
5. Additional Considerations
If you are married, and worked part time during the year you should see if you qualify for the Earned Income Credit. This credit is refundable, which means you can receive a significant tax return each year. There are strict rules surrounding the credit and you need to follow them exactly, because if you do not you will be disqualified for applying for the credit in the future. If you have children you should also take advantage of the child tax credit, which is also refundable. If you itemize you may also want to claim your charitable donations on your taxes