What could be a better combination than taxes and student loans? While these might be two of your least favorite topics, the reality is that they are critical components of your financial future. Tax season is one of the rare times of the year where your student loans might actually bring you more happiness than grief. Due to a few federal programs that exist, there are tax breaks geared towards student loan repayment that you might be eligible for this upcoming year.
Check out these important student loan tax tips for 2019 and be sure you don’t miss out on any opportunities to improve your financial situation.
For Those Who Are Still Completing School
If you are still in school and have student loans, the good news is that there are options for you during tax season to give you a break. If you have debt and have to purchase expensive supplies for college while also juggling living expenses, it can leave you in a tough place financially. For this reason, the federal government offers some potential tax credits. These credits can help you pay less in taxes and contribute to a better start for 2019.
The American Opportunity Credit
One excellent credit to take advantage of is the American Opportunity Credit. This program provides relief for students who meet the following criteria:
- Presently pursuing a degree
- Enrolled at least half-time for a minimum of one academic period beginning in the tax year
- Have not finished the first four years of higher education at the beginning of the tax year
- Have not claimed the American Opportunity Credit for more than four tax years
- No felony drug convictions at the end of the tax year
If you meet the qualifications for this tax credit, you will receive a maximum annual credit of $2,500. Generally, the credit will be based on qualified tuition and related expenses. This includes tuition and required fees for your attendance at an eligible school. Other items covered might include:
- Money spent on books for classes
- The cost of supplies for your course of study
- Spendings on equipment needed for class
The Lifetime Learning Credit
Another credit students can take advantage of is the Lifetime Learning Credit. Unlike the American Opportunity Credit, there is no limit on the number of years you can claim this credit. You do need to be enrolled in school. The specifications for this credit include:
- Taking courses or be enrolled at an eligible school
- Taking higher education courses to get a degree or other educational credential OR to improve job skills
- Enrolled for at least one academic period beginning in the tax year
As you can see, the lifetime learning credit is more flexible than the American Opportunity Credit. You do not have to be a full-time student, in fact, you could be taking a single course to qualify. You also do not have to be in school to gain a new degree; you could be pursuing education to further your job skills.
This credit is worth up to $2,000 and is calculated as 20 percent of the first eligible $10,000 you incur due to tuition and related expenses. This can include mandatory fees, supplies, and equipment.
For Those Done With School
The above tax credits are specifically for those who are still in school. For those who have completed their education and are no longer enrolled in any classes, the above tax credits cannot be claimed. However, there are still ways you can save during the next tax season if you have student loans.
Student Loan Interest Deduction
Each year, as you pay on your student loans, you are paying two different costs. You are paying on the original loan you took out and you are paying on the interest it is accruing. This interest can be extremely costly and over the course of the year, you may have spent thousands of dollars of your money paying on interest alone.
The good news is that you can deduct this interest on your taxes. Each year you can deduct up to $2,500 of money paid on student loan interest. In order to do so, you must have a modified adjusted gross income of $80,000 or less per year as a single filer. In the case of joint filing, your modified adjusted gross incomes must be $160,000 or less.
For further information on student loan interest deductions, check out the IRS’ dedicated page here.
Student Loan Repayment isn’t Easy
Student loan repayment changes each year, just like the tax laws. Repayment plans are added or removed, rules for forgiveness change, and benefits tied to student loans evolve. You go to a tax expert to help with your return, you should also have a student loan expert help with your repayment.
Next year, make student loan repayment even easier by talking to your employer about IonTuition’s student loan repayment benefit program. Your employer could help you with payments and lower your monthly costs. Find out more at our website and reach out to our team today.