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Are you a college student, a graduating student, or a parent of a freshman college student who’s looking for ways to take advantage of special tax breaks?

The cost of attending college in the U.S. can sometimes be costly. According to the National Center for Education Statistics reports, tuition and other fees at public in-state universities cost around $8,620, roughly $19,034 at public out-of-state, and averages $29,371 at private non-profit universities. Student debt has significantly increased, and now stands at an all-time high of $1.75 trillion due to the rising costs of higher education.

Many parents, guardians, and students wish to avoid paying these costs. Thanks to tax credits, deductions, and tax-free savings accounts, the American government can provide a range of tax incentives for college students.

Here are a few tax benefits you should know when attending college.

Common Tax Benefits for College Students

A tax credit lowers the amount of taxes you owe, whereas a tax deduction lowers the amount of income that is subject to tax. Both could result in a few dollars more in your tax refund. The key to making sure no money is left on the table is to be aware of what is available, ensure your eligibility, and take action.

There are common education expenses that qualify an attending college student for tax benefits. You should consider everything, including the cost of your college education, and interest in both your private and federal student loans.

  • American Opportunity Credit allows eligible students to receive a $2,500 annual credit for educational costs like tuition and books during the first four years of their higher education.
  • Under the Lifetime Learning Credit, undergraduates, graduate students, and students pursuing professional degrees may be eligible for a credit of up to $2,000.
  • The Student Loan Interest Deduction lets borrowers deduct up to $2,500 in interest paid on a loan for higher education directly on Form 1040. The deduction is capped at the amount paid for those who paid less than $2500.
  • Graduate students who qualify for tuition reductions are exempt from reporting the value of the reduction in their income.
  • Tax benefits associated with 529 plans can be utilized for approved educational expenses up to $10,000, and may be eligible for a tax credit or deduction depending on your state.
  • Every parent of a prospective college student should be aware of the Coverdell Education Savings Account that allows them to withdraw money tax-free if it is used to pay educational expenses.

For a comprehensive list of all tax benefits for education, and to find out what advantages your state provides to parents and college students, you should talk to a professional tax accountant with years of experience and practice.

Are You Eligible for College Tax Benefits?

If you file your tax return early, you might be eligible to claim tax credits and deductions for college. These two tax benefits will help maximize the amount of financial help you can get for education.

What is the difference between these two?

A tax credit reduces the amount of tax you owe, giving you a dollar-for-dollar reduction of your  tax liability. These credits are applied directly against the amount of tax you owe. For example, if you qualify for a $4,000 tax credit, you save the same amount on your tax bill.

A tax deduction, on the other hand, reduces your taxable income, which often lowers your overall tax burden. Unlike a tax credit, it won’t lower your tax bill dollar for dollar. Instead, the tax deduction will depend on your income tax bracket. For example, if you fall into a 24% tax bracket, a $1000 deduction saves you $240.

Other College Tax Benefits You Should Know

tax benefits attending college

There are other options to help you in offsetting taxes when paying for a college education.

Savings accounts for educational purposes provide tax-free earnings growth and tax-free withdrawals. Parents and eligible students can put these savings accounts to great use.

You can also put money into an education savings bonds plan. If you participate in this program, you might be eligible to deduct interest from your income when you reclaim qualified savings bonds for college expenses.

Learn More About College Tax Benefits with White Sands Tax Solutions

U.S. tax laws, rules, and regulations are continuously changing. If you are considering applying for college tax benefits, it’s important to speak with a tax expert.

White Sands Tax Solutions provides education on valuable tax benefits to students attending college, We can help you determine your eligibility for tax credits and deductions, and make sure you’re capitalizing on these benefits. To learn more about our services, contact us, or book an appointment at your earliest convenient time.

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