Tips for Filing Taxes as a Student
Tax Tips for Students
College brings with it many adult responsibilities you may have never had to encounter; doing your own laundry, paying all your own bills, and for many, completing a tax return for the first time. Filing taxes as a student, especially if it’s the first time you have had to file, can be a daunting task. I hope this article can provide some tax tips for students in college that may feel intimidated by the process.
The first step in preparing your own taxes will, ironically, require a conversation with your parents, or any guardians you may have. This is necessary because the first thing you will need to determine is whether any of these individuals will be claiming you as a dependent on their tax returns. If they are, this will affect some of the credits and/or deductions that you may claim on your own return.
Generally, a parent can claim you as a dependent until age 19, but if you are a student, they can claim you as a dependent until age 24. There are a variety of other requirements, including how much support your parents are providing for your, i.e. are they paying any of your expenses during the year? If your parents do qualify to claim you as a dependent, you will need to discuss with them, using the other information provided below, whether it is more beneficial for them to claim you as a dependent or for you to claim yourself.
Education Credits & Deductions
American Opportunity Credit
The American Opportunity Credit (AOC) allows for a maximum credit of up to $2,500 for the cost of tuition, fees, and course materials paid during the year. Additionally, up to 40% ($1,000) of the credit is refundable. The AOC is available to a you if you, or your dependent, is enrolled at least half-time at a post-secondary institution. The credit can only be claimed for four years, so it is often not available for those taxpayers pursuing a graduate degree.
Since the credit is available for taxpayers that have a dependent earning an education, if your parents claim you as a dependent, they could claim this credit. Additionally, there is a phaseout for the credit that begins as $80,000 ($100,000 if filing MFJ). So if your parents are high earners they may not receive the full benefit of the credit. This will be one issue to look at when determining whether they should claim you as a dependent.
Lifetime Learning Credit
The lifetime learning credit (LLC) of $2,000 is available for qualifying education expenses (QEEs) paid for an eligible student. For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution. The student must be either you, your spouse (if MFJ), or your dependent. The expenses must be for an academic period that begins during the tax year or during the first 3 months of the following tax year.
As you can see, there are less requirements for the LLC. For example, you are not required to be enrolled at least half-time, and the LLC can be claimed for more than four years. Additionally, the taxpayer may not claim the LLC if they are already claiming the AOC or the tuition and fees deduction (discussed later). Lastly, there is a phaseout similar to the AOC. However, it begins at a lower amount for the LLC. The phaseout begins at $57,000 ($114,000 for MFJ). Therefore, lower earning taxpayers are more likely to be phased out for this credit.
Tuition and Fees Deduction
The tuition and fees deduction is an adjustment to income if your incur qualified education expenses for you, your spouse, or your dependent. Such expenses must be required for enrollment or attendance at an eligible educational institution. The deduction is 100% of qualified higher education expenses with a maximum of $4,000, $2,000, or $0, depending on the amount of your modified AGI and filing status. The phaseout for this deduction falls between the AOC and the LLC. The phaseout begins at $65,000 ($130,000 for MFJ).
You can generally claim the tuition and related expenses deduction if you pay qualifying education expenses for higher education, pay the education expense for an eligible student, and the eligible student is you, your spouse, or your dependent. Just as with the other credits, you cannot claim this deduction if you have claimed the AOC or LLC. Additionally, in order to claim the credit, you must not be a dependent on your parents’ return, and you must pay the expenses yourself. Therefore, if your parents claim you as a dependent, but you pay the expenses, neither of you can claim the deduction. The same rule applies if they do not claim you as a dependent, but they pay the expenses.
There were many updates to the tax code when Congress passed the Tax Cuts and Jobs Act (TCJA) at the end of 2017. However, none of those updates are specifically targeted at students or the credits and deductions available to students. The one change that will likely affect a student the most is the elimination of personal exemptions. This change will play a big part in the discussion you have with your parents about whether or not they should claim you as a dependent.
For tax years beginning after December 31, 2017 and before January 1, 2026, the TCJA eliminates personal and dependent exemptions as well as the phase out of these exemptions. However, TCJA retains the definitions of a dependent qualifying child and qualifying relative for purposes of other child and dependent related tax benefits. Therefore, your parents will lose the benefit of an extra exemption for you, but they can still claim you as a dependent to qualify for each of the credits and deductions discussed above.
Learning how to file taxes as a student can be difficult and confusing. Make an appointment with one our tax professionals today and they can walk you through the decision-making process to get the greatest tax benefit for you and anyone that may qualify to claim you as a dependent.