For a certain kind of person, tax season is the most wonderful time of year, a time filled with visions of tax refunds and the hypothetical spending sprees they’ll allow. For others it’s a time of newfound austerity, hopelessness, and regret. Depending on your financial situation, you can end up owing more taxes than you paid in all year — ouch. Fortunately, the government realizes how significantly financial situations can change from year to year and helps the taxpayer out with a system of credits and deductions. Tax credits are subtracted from the amount of tax you owe to the gov, while tax deductions are subtracted from your taxable income. Both result in you keeping (or getting) a little more money.
The lives of college students and recent grads are necessarily in flux, with tuition payments turning into loan and rent payments, plus the added stresses of realizing you’ll probably need to save up a cool $1.8 million for retirement. So this year when you’re preparing your taxes, use these payments to your advantage and look for these tax benefits.
American Opportunity Tax Credit
This credit formerly existed as the Hope Scholarship Credit and is currently set to expire in December 2017. The AOTC is more extensive than the Hope credit, covering the first four years of college instead of the first two. You can claim the expenses for tuition and required fees, including course books and supplies, to reduce your tax liability by up to $2,500. Even if you don’t owe anything in tax, up to 40% of the credit is refundable, so you can receive that money anyway. You can’t claim this credit, however, if you make more than $80,000 or if you plan to claim the Tuition and Fees tax deduction.
Lifetime Learning Credit
Along the same lines as the AOTC, the Lifetime Learning Credit is worth up to $2,000 per tax return for those who earn less than $55,000 per year. If you make between $55,000 and $65,000, you could also receive a reduced credit.
Tuition and Fees Deduction
Claiming your tuition and associated fees can reduce your taxable income by up to $4,000. The AOTC might still give you a more direct benefit, but if you don’t qualify for that credit, the tuition and fees deduction will still help out. (There are also several other education-related deductions you could potentially claim.)
Student Loan Interest Deduction
Recent grads, you’re probably missing those college tax credits dearly. But there’s something for you too: You can claim the amount of interest you’ve paid on your student loans through the year, up to $2,500. So the more you’ve paid on your loans, the more you get back — a nice incentive to start chipping away at that intimidating balance. The only catch is that your modified adjusted gross income must be below $80,000.
Retirement Savings Contribution Credit
Not many of us qualify for this one for long, so keep it in mind and use it when you can. The Retirement Savings Contribution Credit can help offset up to the first $2,000 you save for retirement — and the sooner you start, the better off you’ll be. It only applies, however, if your adjusted gross income is $30,000 or less.
State Rent Credits
Credits specifically for renters aren’t available at a national level, but dozens of states have taken it on themselves to provide renter credits and deductions, including Wisconsin, California, Massachusetts, Michigan, New York, and many others. Check on your state’s revenue website to make sure you get any credits you deserve.
Whether you’re the type to drop off your documents with an accountant, use one of the various tax filing websites, or grab a stack of forms and fill them out by hand, it’s a good idea to know ahead of time what credits and deductions you can claim. With the above in mind, make sure you have your taxes filed by April 17, 2017 — the earlier you file, the quicker you get your return.
