While student debt may be an inevitability for many, there are many things college students can do to alleviate this debt. According to the New York Federal Reserve, Americans ended the third quarter of 2012 with a $74 billion lighter debt load overall, but consumers upped their non-mortgage credit debt by another $2 billion and took on $42 billion in new student loans.
With the majority of the new debt coming from student loans, college students should know their options as far as tax breaks go, especially heading into tax season.
The U.S. Government Accountability Office found that Americans left nearly $800 million worth of college tuition tax benefits in 2009 on the table.
Here are some of the best tax credits college students can take advantage of:
American Opportunity Credit. Students are eligible to claim up to $2,500 for the first four years of post-secondary education. With 40 percent of the credit being refundable, students can get back up to $1,000 on their refund –– even if they don’t owe any taxes, according to the IRS.
What qualifies: Tuition and fees, course related books, supplies and equipment. Income: Couples filing jointly who earn less than $160,000; single-filers who earn less than $80,000.
Lifetime Learning Credit. For students earning less than $60,000 (single-filers) or $120,000 (married, filing jointly), they can claim up to $2,000 education-related expenses.
Tuition and fees deductions. Like the American Opportunity Credit, students earning less than $80,000 (single) or $160,000 (married, filing jointly) can deduct up to $4,000 in tuition and fees on their annual tax returns. Use it while you can –– this tax break is set to expire at the end of 2013, unless lawmakers extend it.
Student loan interest deduction. If you’ve taken out a federal or private student loan, you’re eligible to deduct up to $2,500 worth of interest paid on the loan as an “above-the-line” exclusion from your income. You don’t have to itemize your deductions in order to claim it.
Note: College students can only claim one of the above tax credits per year, but parents supporting more than one child in college can claim tax credits on a per-student basis.
James Gilbert | Elite.