College can already be stressful between juggling classes, homework and a job. The last thing you may want to deal with is filing your tax return. But don’t let tax season intimidate you. Taking the time to understand your taxes may help you feel less overwhelmed and can put some extra money in your wallet. Here are five things you can do that may help you maximize a tax refund.
- Know your dependency status
There are a lot of tax breaks for education-related expenses. However, if your parents listed you as a dependent, you may not be able to claim the tax breaks. Check with your parents so you know which tax exemptions you will be eligible for your own tax return.
- Tax forms you’ll need
○ W-2 – this is the form you will receive from your employers
○ Form 1098-T – this is your tuition statement provided by your college
○ Form 8863 – this form is for qualifying (if any) education credits
○ Form 1098-E – this form is for any student interest loans that may qualify for deductions
- Take advantage of student tax credits
There are two federal tax credits for college students: The American opportunity tax credit (AOTC) and the lifetime learning credit.
Lifetime learning credit isn’t refundable, though, so it only helps cover any taxes that you owe. For students that expect a tax refund, this credit will not be as helpful.
Don’t forget, you can only claim one of these two education credits in the same year. If you received any financial assistance such as a scholarship or a grant, this may also impact your tax return.
- Make interest-only payments on your student loans
Most student loans usually start accruing interest as soon as they disburse the funds to you or your school which increases the amount of interest you need to repay after you graduate.
Keep in mind, interest may capitalize. What this means is that the interest you still owe could get added to the principal amount you borrowed. As a result, the interest will now be based on the new (higher) principal amount.
One solution is that if you make interest-only payments, you can prevent the interest from capitalizing. Also, you can deduct that interest paid from your income on your tax return, up to $2,500 a year.
Remember, you can only take advantage of this deduction if your parents doesn’t claim you as dependent.
- Don’t pay to file your tax return
Tax returns for students are usually simple and straightforward, so don’t pay to file them. It’s best to learn how to file it yourself or use a fee online tax preparation service.