College is the bridge to adulthood. While you can still enjoy all of the fun things about attending university, you may have to deal with some of the tedious grown-up tasks. For many students, it may be the first time that they have to file a tax return.
The first time doing taxes can be intimidating. In this article, we’ve thrown together some tips to make this process as easy as possible, while maximizing any tax refund that may be owed to you.
Apply for Scholarships
Not only are scholarships free money to help you pay for your education, but they are also usually tax-free. When it comes time to calculate your tax refund, you can leave out these payments as they are not included as taxable income.
There are many resources to help you find scholarships that you are eligible for. You can check websites and through your school’s financial aid office.
Understand Your Dependency Status
Some of your education-related expenses could be written off as deductions, but this depends on your dependency status. If you’re a full-time student under the age of 24, your parents may still claim you when they are filing taxes.
Check with your parents and talk over the advantages and disadvantages of both options. If they’ve claimed you as a dependent, you won’t be able to collect on tax-breaks. If you’re paying your way through college, it’s a good idea to file your own tax return.
Make Interest-Only Student Loan Payments
Unless you have government-subsidized student loans, the interest will start accruing as soon as you receive the loan money. The longer you wait to start making payments, the more you’ll have to cover when you graduate.
The interest may capitalize, meaning that you will owe that on top of the principle. From that point on, you will have to pay interest on the higher amount. To avoid this, make interest-only payments.
So, what does this have to do with taxes? You can deduct the interest paid from your income on your tax return. As mentioned before, this only works if you’re not claimed as a dependent.
Look for Special Credit
The American Opportunity Tax Credit (AOTC) can give you back up to $2500. The expenses that qualify are tuition and fees, books and supplies, and any other school-related costs. These credits are designed for students enrolled in higher education.
Your parents may get this credit if they have claimed you as a dependent. You also will have to deduct tax-free financial aid like scholarships and grants from qualified education expenses.
Take Advantage of Available Resources
Most tax returns for college students are relatively simple. You probably don’t need to hire someone to do it for you. We recommend taking some time to learn how to file taxes for yourself. Luckily, many available resources can help you prepare state and federal tax returns.
These tips may not be helpful for everyone, especially those who are not from the US initially. If you are an international student, tax season can be confusing.
If you are studying in a US-based university, but you are from Canada, for example, you may still have to pay a residency tax in your home country. According to Tax Page, to define tax residency Canada determines responsibility based on any intimate “ties” such as a family home.
For US students, taxes differ state by state. There are many resources available to help you and speak to your financial aid, parents, or a tax professional with any concerns or questions. This process will be educational, but it may not be fun.