Tax Tips for Students

I am really enjoying pursuing a master’s degree in counseling, however I don’t enjoy the loans that have to be taken out to pay for higher education. However, if I’m going to have to pay so much for education, the best thing to do is see how to minimize the cost of that education.

One way to reduce the cost of an education is through secondary means of taking advantage of education tax deductions and credits. First, the more popular education tax credits. The IRS makes available the Hope and Lifelong Learning Education Credits through form 8863. The Hope Credit can be taken for the first two years of higher education, gaining a credit of up to $1,650 per student. After those two years, the same form can be used for the Lifetime Learning Credit - which can also be used throughout graduate school. This credit is for up to 20% of the qualified educational expenses (maximum credit of $2,000 per student).

An alternative to the Education Credits is the Tuition and Fees Deduction which is submitted through form 8917. If eligible, this option makes it possible for an individual to gain an above the line deduction of up to $4,000.

One catch is that of the above three option (Hope Credit, Lifetime Learning Credit, Tuition and Fees Deduction), only one can be applied to each student. However, if you have multiple college students in your family a different option can be applied to each student. Since Stacey and I both had graduate classes in 2007, we will be able to take a Lifetime Learning Credit for Stacey’s classes, and a Tuition and Fees Deduction from my classes.

A final method of minimizing the cost of education through a tax advantage is available through the student loan interest deduction. This is also an above the line deduction, allowing you to deduct all the interest that was paid on qualified student loans before your adjusted gross income is computed. This deduction is taken as a line item, line 33 on form 1040, instructions can be found on page 30 of the form 1040 instruction manual.

Higher education is an investment. However, hopefully if you are making this investment you are also taking advantage of these tax tips to make the investment as small as possible! If you know of any more tax incentives for those in higher education, post comments!

State Income Taxes and Politics

NOTE: I am by NO MEANS a tax professional. Nor am I qualified to give tax advice. I am not a CPA, don't have a business degree, and am only mentioning some things I have found that might be helpful. Truly my only suggestion here is to do the research yourself to see if you qualify for this tax credit!

When I moved away from Tennessee, I knew one financial change would be moving from a state without an income tax, to one with a state income tax (Arkansas). This year I will end up paying over $1,000 in state income tax, and still have to pay a sales tax of 9.75%. It doesn't seem hardly fair! Since I do have to pay state income tax, I searched for ways to limit how much I have to pay. To my knowledge there isn't yet a deduction or credit for education expenses on Arkansas income taxes (without itemizing), though there is a deduction for interest paid on student loans (AR 1000 ADJ, line 4).

This year in the packet that I received, however, I paid more attention to the forms that I hadn't used before. AR 1800 - the Political Contributions Credit. Basically, I can donate up to $50 (or up to $100 as a married couple) to a candidate seeking public office (state level or lower - not federal), an approved PAC (Political Action Committee), or a political party, and receive a 100% tax credit. The donation must be made by April 15, 2008 to count as a credit for this year. This year we have decided to send $100 to the Arkansas Right for Life PAC. After filling out AR 1800, we will send in $100 less in state income taxes, making this donation cost us nothing more than we would be spending otherwise! Oregon and Virginia also have similar laws.

If you have to pay state income tax, check and ask around - see if you can make a contribution to a political organization and thereby become qualified for a tax credit! What a great way to quite easily make your voice heard!

NOTE: I am by NO MEANS a tax professional. Nor am I qualified to give tax advice. I am not a CPA, don't have a business degree, and am only mentioning some things I have found that might be helpful. Truly my only suggestion here is to do the research yourself to see if you qualify for this tax credit!

Taxes and Savings

Yes, I know it isn't April 14th yet, and you're probably waiting until then to start on taxes, but don't you think we might be able to get a jump start on taxes? After all, part of frugality involves planning ahead, and making wise financial decisions now for the future. I am by NO MEANS a tax professional. Nor am I qualified to give tax advice. I am not a CPA, don't have a business degree, and am only mentioning some things I have found that might be helpful. Truly my only suggestion here is to do the research yourself to see if you qualify for this tax credit! However, every year since I had my first job, I've filed my own taxes with only the help of my mother (thanks!). As I'm beginning to work on my 2007 taxes this month, I want to share a few things I've found this year, or in the past, that are really beneficial to me as I prepare my taxes. Most of you will probably already be aware of them, but in the event that you aren't, maybe what I share will encourage you to study the relevant tax laws yourself to see if they might apply to you, or to ask your tax preparer about these deductions and credits.

The first income tax 'discovery' I'd like to share is what I have found concerning retirement savings contributions. Most people are aware of the fact that if they make contributions to a traditional IRA, the contributions may be tax-deferred (see IRS Form 1040 Instructions for requirements). Many of you, like myself, however would rather pay the taxes today, and be able to withdraw those funds after retirement tax free, expecting to withdraw more than you put in, and so we choose Roth IRA's. Here's the great news - just because you don't get the above the line deduction for a Roth IRA contribution, doesn't mean there aren't any tax benefits! You may qualify for a tax credit for contributions to your retirement account (whether it is a traditional IRA, Roth IRA, 401(k), or other plan). IRS Form 8880 should be consulted to see if you are qualified. Some specific requirements concern your Adjusted Gross Income. If you meet the other qualifications and have an AGI of $15,500 or less ($31,000 or less for married couples) you can receive a credit for 50% of your contributions to the retirement savings plan, up to $2,000. The credit phases out for those with a higher AGI, with a 10% credit for individuals with an AGI less than $26,000 ($52,000 for a married couple).

So then, supposing your income is as low as mine, and you work to deposit $2,000 into your Roth IRAs throughout the year, you will pay $1,000 less in taxes - essentially allowing the federal government to match your first $1,000 of contributions!

Don't pass up this great possibility at a tax credit that encourages you to save for retirement! And, if it is already too late for your 2007 taxes, work towards utilizing this credit in 2008 by beginning to make regular deposits into a qualified retirement account now!

NOTE: I am by NO MEANS a tax professional. Nor am I qualified to give tax advice. I am not a CPA, don't have a business degree, and am only mentioning some things I have found that might be helpful. Truly my only suggestion here is to do the research yourself to see if you qualify for this tax credit!