Contributor/JRNM 223 student
Students at Lorain County Community College and other schools across the nation face a deadline April 15 that could cost them not a grade, but money. Valuable money could potentially be left unclaimed if you do not file, or if education tax breaks are not used. To avoid leaving hard earned cash behind, here are four useful tips to help students with their taxes.
Tip one is to file a return. Not all college students are required to file a tax return because they did not earn enough money. Who needs to file? A typical college student, single and claimed on a parent’s return, is required to file if their earned income is more than $6,100 or unearned income (interest and dividends) is more than $1,000. Even if not required to file a return, if you had taxes withheld from your paychecks you must file in order to receive a refund.
The second tip is to file an extension. An extension must be filed by April 15 if you do not have time to file your return by that date. You will then have until October 15 to file your return. It should be noted that this is an extension to file, not an extension to pay taxes you may owe.
Tip three is to coordinate who claims you as a dependent. A dependent, usually a qualifying child or relative, may be claimed as an exemption and can help reduce taxes. James Levis CPA of Elyria based Levis, Nolan & Company CPAs emphasized the importance of students working with their parents to minimize overall taxes within the family. “Make sure that you coordinate with your parents about claiming a dependency exemption,” suggested Levis. “In most cases it makes sense for parents to claim their child as a dependent.” If you are not providing more than 50% of your support, you are not entitled to take a personal exemption. Be aware that a tax return will be rejected if a person is claimed on two separate returns.
The fourth tip is to take advantage of education tax breaks. There are four categories of higher education tax credits and deductions. The American Opportunity Tax Credit can reduce taxes by 100% of the first $2,000 plus 25% of the next $2,000 of qualified tuition and related expenses. It has a maximum of $2,500 per year for the first four years of college. “The American Education Credit allows a credit up to $2,500 per eligible student. It is allowed up to 4 years provided you have not obtained your Bachelor’s degree,” explained LCCC Professor Robert Katricak. “Eligible expenses include tuition, books and supplies. If a student is claimed on their parent’s return, the parents will take the credit, not the student.” The Lifetime Learning Credit is 20% of the first $10,000 paid for qualified tuition and related expenses. The Tuition and Fees Deduction reduces taxable income up to $4,000 per year. Finally, The Student Loan Interest Deduction can reduce taxable income up to $2,500 for interest paid on student loans. IRS Publication 970, Tax Benefits for Education, outlines who qualifies and what expenses are eligible for the education tax breaks.
It is important to know that whoever claims the student as a dependent is eligible to claim only one of the tax breaks described above per student per year. By keeping these four tax tips in mind, students can minimize tax bills and potentially get more money in their pocket.