If you’re in school or have recently graduated from college, your education expenses can be a big drain on your expenses. This is why it’s important to take advantage of education-related tax deductions and credits when you file your tax return. Read on to not overlook the credits and deductions you are entitled to.
By claiming all of the deductions and credits you’re eligible for, you can reduce your tax bill and increase your tax refund.
What are tax deductions and credits?
• Tax deductions: Tax deductions lower your taxable income. For example, if you make $35,000 per year and have $5,000 in tax deductions, you will only pay taxes on $30,000 of your income.
• Tax credits: By contrast, a tax credit is a dollar-to-dollar reduction of what you owe in income taxes. For instance, if your tax bill is $600 but you have $600 in tax credits, you’d have a tax bill of $0.
To help you get every dollar you’re entitled to receive in your tax refund, here are 4 education tax credits and deductions that you may be overlooking:
1. American Opportunity Tax Credit
If you’re enrolled at least half-time at a university and are pursuing a degree, you get up to $2,500 as an annual credit through the American Opportunity Tax Credit (AOTC). You can claim the AOTC for the first four years you spend in higher education and it is refundable.
2. Lifetime Learning Credit
If you’re pursuing a degree or taking a certificate course, you can qualify for up to $2,000 in credits through the Lifetime Learning Credit (LLC). Unlike the AOTC, there is no limit to how many years you can claim the LLC, so you can claim it throughout your career. But it is not refundable.
3. Earned Income Tax Credit
For working college students and recent graduates, the Earned Income Tax Credit (EITC) is one of the most substantial tax benefits you can claim. If you have no children and are single, you can qualify for the EITC if you had a job during the past tax year and if your earned income is less than $15,570. Claiming the EITC can be a great way to get extra money.
4. Student Loan Interest Tax Deduction
Unfortunately, your tuition and room and board can’t be deducted from your tax return. However, if you took out federal or private student loans to pay for school, the interest you pay on those loans is deductible.
With the Student Loan Interest Tax Deduction, you can deduct $2,500 or however much you paid in interest on qualified education loans – whichever is less.