Students can save more on taxes by using the various tax credits and deductions available to them. Tax saving is a great way to help students reduce expenses on higher education. Along with credits and deductions, the government also offers various saving plans and exclusions to students to help them in their educational pursuits.
Credits: The American Opportunity Tax Credit and the Lifetime Learning Credit are the two education credits that help students to minimize the taxes they pay. If the credit reduces your tax liability to zero, then you get a refund. To qualify for these credits, you must meet the following basic criteria along with other specific requirements for each credit:
- Your dependent, a third party or yourself funds qualified education expenses for higher education.
- There must an eligible student enrolled at a qualifying educational institution.
- The eligible student is your spouse, yourself or a dependent that you include on your tax return.
Deductions: You can deduct some of the educational expenses on your tax return for yourself, your spouse, or a dependent you list on your return. If you file as married filing separately, then you cannot claim this deduction. Also, no two taxpayers can claim the same deduction for the same person on different tax returns.
Student Loan Interest Deduction: Students get a special deduction allowed on interest. If you take a student loan for higher education, and your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), then you may use this special deduction.
Business Deduction for Work-Related Education: If you aren’t a full-time student, but an employee who is pursuing work-related education, you can deduct your qualifying work-related education expenses on your tax return. You can only make these deductions if you itemize.
If you are self-employed, then you can deduct your work-related educational expenses directly from your income. It will reduce your taxable income and help you to save more while receiving education.