The 6 Best Tax Breaks for College Students According to Kalman Chany

 The 6 Best Tax Breaks for College Students According to Kalman Chany

Tax season may be stressful, but the IRS offers some relief by offering various tax breaks that college students can take advantage of. You just need to know where to look! In this article, you’ll get the inside scoop from CPA Kalman Chany on the six best tax breaks for college students, including information about which tax credits and deductions are available, and how these savings can help your college finances!

1) American Opportunity Tax Credit

One of the best tax breaks for college students is the American Opportunity Tax Credit. This credit is worth up to $2,500 per student and covers 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000 in qualified education expenses. Keep in mind that this tax break requires a 1098-T form to be filed.

2) Lifetime Learning Credit

The Lifetime Learning Credit is a tax break that can be claimed by any taxpayer who pays college tuition and fees, even if they're paying them on behalf of their child. If the student's a dependent, the credit is worth 20% of up to $2,000 in qualified expenses. If the student's not a dependent, it's worth up to $1,000. The money you save with this tax credit might just make your dream school possible!

3) The Student Loan Interest Deduction

In order to qualify, your modified adjusted gross income must be less than $80,000 ($160,000 if filing a joint return). If you're paying interest on student loans and you meet these requirements, then up to $2,500 can be deducted from your taxable income.

4) The Hope Scholarship Credit

The Hope Scholarship Credit is a tax credit of 100% of the first $2,000 of qualified tuition and related expenses that you paid during the year. The credit phases out at modified adjusted gross income (MAGI) levels of $80,000-$90,000 ($160,000-$180,000 if married filing jointly). MAGI is adjusted gross income plus any excluded foreign earned income and tax-exempt interest.

5) Coverdell Education Savings Accounts

You can use a Coverdell Education Savings Account (ESA) to make annual contributions of up to $2,000 per child. You don’t have to be wealthy or itemize your taxes—you just need earned income and you can contribute $2,000 per year. The money grows tax-deferred until it is withdrawn and used for qualified education expenses such as tuition, fees, books, supplies, and equipment.

6) 529 Plans

A 529 plan is a tax-advantaged investment account that provides tax-free growth and tax-free withdrawals from earnings for qualified education expenses. Contributions of up to $14,000 each year (or $28,000 if both parents are eligible) are allowed in order to offset the costs of college tuition.