College students are faced with seemingly endless school expenses associated with higher education, from paying tuition to paying for campus parking permits. A question that often comes up around tax season is which of these school expenses are tax-deductible, and how can students receive the best tax return possible?
As your local Cedar City, UT accounting firm, we have helped plenty of Southern Utah University students as well as other college students—and parents who claim them as dependents—with their tax preparations. Below is a breakdown of what college expenses can be deducted from taxes, what tax credits and tax deductions students are eligible for, and other college-related tax answers.
What School Expenses College Students Can Deduct From Taxes?
When it comes to saving on your college-related expenses, you might be surprised how much can be deducted from your owed taxes to help you have a better tax return.
- Educational supplies – There are qualified educational expenses that you can deduct from your taxes, ranging from your textbooks to necessary equipment like your transportation.
- Student loan interest – For those who have an adjusted gross income under $80,000 for single filers—AGI of $160,000 for married filing jointly—you can deduct the interest you have paid on your student loans.
- Room and board – In some cases, the amount you spend on room and board for college can be deducted from your taxes.
- 529 plans – Adding money to a 529 saving plan is tax-free, so you can pay for your college expenses with your 529 plan to help save on taxes.
Some professions require continuing education, even after you are finished with your college days. Depending on your expenses, you may be eligible for an employer-required education tax deduction.
Tax Credits College Students Should Use
There are a couple of tax credits that are available to college students that allow you to save on your taxes.
- American Opportunity Tax Credit (AOTC) – In the first four years of college, you can claim the American Opportunity tax credit. This credit provides you with a $2,500 credit, and if your tax liability goes to zero dollars thanks to this credit, the IRS will refund 40% of the credit, up to $1,000. You will need to have at least $4,000 in college expenses claimed to receive the full AOTC credit.
- Lifetime Learning Tax Credit (LLTC) – Once the time limit on the AOTC has run out, you can still claim the Lifetime Learning tax credit. For this educational credit, there is no limit on the years you can claim it. With the LLTC, you can reduce your taxes by $2,000.
There are other eligibility criteria that may apply to you, such as if your parents are claiming you as a dependent, and other concerns. Utilizing our accounting services to prepare your taxes can help ensure that you are receiving the correct deductions and tax credits.
When College Students Should File A Nonresident Tax Return
While some college students stay in-state for their higher education, plenty of other students take the opportunity to start their adult lives outside of their home state. This move also usually necessitates at least a part-time job, where the out-of-state student earns income while attending college.
However, in most cases, these out-of-state students are still legal residents of their home state. Because of their state residency status, these students will need to file nonresident state tax returns in the state their university is located as well as file resident state taxes in their home state.
For those who live in states that don’t collect income taxes—i.e., Wyoming, Nevada, Alaska, Washington, Florida, Texas, and South Dakota—you don’t need to file a resident tax return or a nonresident tax return. But for all other out-of-state college students, you will need to file a nonresident tax return, resident tax return, and federal tax return.
Work With AA Tax & Accounting Services To File Your College Taxes
With all these expenses, some college students don’t want to add the expense of paying for quality tax preparation services. However, not all tax returns are that straightforward, which can leave students missing out on deductions that can increase their tax return.
Instead of gambling that one-size-fits-all tax software can prepare your taxes properly, you can use an experienced accountant who knows what questions to ask and information that is needed to help you save on your taxes and boost your return amount.
When you are ready to take care of your taxes with an experienced tax professional, feel free to contact us today to set up your appointment.