A Guide to Student Financial Aid Taxes

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Did you use a student loan to put yourself through school? Are you working hard and trying to make your student loan payments on time?

We may have information to help you pay off that student loan.

Did you know you can receive student loan tax credit when you file your taxes? Student loan tax credit can add up to a substantial amount. It can also allow you some breathing room to pay your student loan debt down while receiving the tax benefits you deserve.

We have a student loan tax credit guide we want to share with you here. We work hard on giving the latest information on tuition and student loan tax credits. 

There are various student loan deductions and credits and each one has its own specific criteria.

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Student Loans and Taxes

Sometimes there are tax approaches which combine a couple of programs to create the largest tax credit for students. Here are a couple;

  1. The American Opportunity Credit. The American Opportunity Credit lets you claim up to $2,500 each year you are in school. This $2500 per year tax credit lasts for four years. It is to help you with your financials as you work towards your higher education goals.
  2. The Lifetime Learning Credit. The Lifetime Learning Credit lets you claim $2000 each year you are in college for any tuition and fees you pay. The $2000 credit goes towards books, supplies, and equipment as well. As long as you needed the books, supplies, and equipment for a course and it was purchased from the school.
  3. Your student loan interest deduction is for the interest you paid on your student loan. This student loan could be for you, your spouse or your dependent.
    • This benefit applies to all loans which were used to pay for higher education expenses. It does not have to be a federal student loan. 
    • The maximum deduction is $2,500 a year.

Student Loan Interest Deduction

You may think you don’t need to do your taxes as you didn’t make enough money to worry about.

Or you may think the tax credits you would receive aren’t worth all the trouble you have to go to for filing your taxes.

But that is thinking that won’t put the tax credit money in your bank account. It won’t give you the little bit of spending money you need either.

The IRS has listed the below as their standards for student loan interest deductions. This list includes;

  • Any student loan interest you paid during the last year (2019) for a student loan which is from a qualified lender. 
  • The IRS counts both required and voluntarily pre-paid interest payments you made.
  • You still can deduct $2500 or the amount of actual interest you paid.
  • You will not need to itemize the deduction because it is claimed as an adjustment to your income.

Now that you know how to claim the $2500 deduction here is a list of when you can claim the deduction;

  • If you are legally required to pay interest on your qualified student loan before you can get the deduction credit. 
  • If you are married, you must be filing taxes jointly. You cannot claim the student loan interest deduction if you are married by filing separately.
  • If you or your spouse are filing jointly but are claimed as dependents on your parents or another person’s taxes you cannot take the $2500 deduction.
Tax Education

Student Loan Tax Deduction

We have gone over the basics of some student loan tax credits and deductions. But there is one more area you need to know about with student loans.

You can take a student loan tax deduction if you used your student loan to pay for higher education tuition or expenses (if the expenses qualify). Some of the student loan tax deduction criteria are:

  • The student loan was for you or your spouse. It can also be for a person who was your dependent when you took out the loan for them.
  • The student loan had to be applied for education during an academic period for an eligible student. 
  • You cannot have flunked out of school and no longer be eligible to attend the school and still receive student loan tax deductions.
  • You paid the student loan interest within a reasonable time. 
  • If your modified adjusted gross income (MAGI) is in a range which is too high, the deduction of $2500 goes down proportionate to your income.
  • Your student loan tax deduction can lower your taxable income by $2,500.
  • It equals you getting $625.00 back on your taxes if you are in the 25% tax bracket. 
Tax Education

Modified Adjusted Gross Income (MAGI)

To understand Modified Adjusted Gross Income (MAGI) better we have given you some specific information below.

The IRS works with modified adjusted gross income in relation to phase-outs. For instance, if your MAGI is under an amount threshold where the phase-out starts you can receive the entire $2500 tax deduction.

However, if you come in above the MAGI amount threshold number, your tax deduction is prorated.

The student loan interest deduction phase-out amounts are listed below;

  • Married Filing Jointly filing status your phase-out begins at $135,000. Your phase-out ends at $165,000.
  • Qualifying Widow(er) filing status your phase-out begins at $65,000. Your phase-out ends at $80,000
  • Head of Household filing status your phase-out begins at $65,000, Your phase-out ends at $80,000.
  • Single filing status your phase-out begins at $65,000. Your phase-out ends at $80,000.
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Student Loan Tax

We understand it can all get confusing trying to figure out what does or doesn’t qualify towards your student loan tax deductions.

You may want to know what qualifies for student loan lifetime learning tax credits. Can these tax credits be used by you anytime or is there a time limit?

So, we have come up with a straightforward way to explain it. The below helps with understanding the criteria allowed in student loans.

If you want to use a student loan it is good to know what is included to receive the student loan tax deductions or credits you want. 

The qualified expenses for 2018 student loan interest tax deductions are as follows;

  • Tuition and fees – No
  • Books and supplies – No
  • Computer and related equipment – No
  • Room and Board – No
  • Transportation – No
  • Health Insurance – No
  • Student Loan Interest Payments – Yes

The qualified expenses for 2018 student tax credits under Lifetime Learning credit is as follows;

  • Tuition and fees – Yes
  • Books and supplies – Yes
  • Computer and related equipment – Yes
  • Room and Board – No
  • Transportation – No
  • Health Insurance – No
  • Student Loan Interest Payments – No

The qualified expenses for 2018 student tax credits under the American Opportunity Credit is as follows;

  • Tuition and fees – Yes
  • Books and supplies – Yes
  • Computer and related equipment – Yes
  • Room and Board – No
  • Transportation – No
  • Health Insurance – No
  • Student Loan Interest Payments – No
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Student Loan Tax Credit

The federal government has set up two different programs so you can receive the tax credits you deserve. The programs are as follows;

  • American Opportunity Credit –  The American Opportunity Credit allows you to pursue the major you want all while obtaining the degree you need for your future.
    • You must use the credits in only the first four years you are in high education courses at a recognized college or university
    • The credit covers tuition payments and the cost of your books and supplies.
      • But it only covers books and supplies if you can maintain at least a half-time student status.
    • Many students qualify for these student loan credits because tuition keeps going up and their living income stays about the same.
      • If you use student loan funds to pay for some of the high tuition costs, you can include that expense towards your tax credit.
  • Lifetime Learning Credit – The Lifetime Learning Credit is for students who have received a four-year degree or finished four years of higher education.
    • This credit is for students who want to keep going to school in continuing education studies. Most students take further studies after their four-year degree to improve work skills.
    • This credit covers tuitions and fees. But it does not cover books and supplies. Unless schools require direct payments for books and supplies.
    • You do not have to be enrolled more than half-time. You can receive the credit for one or more courses.
    • This credit is used by many who want to take advantage of student loans to help pay their tuition. This is because the IRS allows you to receive the Lifetime Learning Credit even if you use a student loan to pay 100% of your tuition.
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How The Lifetime Learning Credit and School Loan Can Work Together

If you need a concrete example of how the lifetime learning credit works with your school loan to get you the greatest benefits we can help you.

  • Tax benefits with your student loan don’t begin or end with the tax credits you receive. You also get a deduction for the interest payments when you start repaying the loans as we discussed above.
  • But even if you use some of the student loan funds for personal expenses other than your school-related expenses, you are allowed to do this.

You do have to adjust your figures and reduce your deduction proportionately. That’s why Silver Tax Group is here, for you. We provide consultation on student loans and how tax deductions, credits, and benefits can help anyone who needs them.

Our comprehensive solutions can help you reduce your taxes or it may get you tax benefits you never knew were available to you.

We make sure that our tax planning walks hand-in-hand with your life plan. There should never be a tax situation you are not prepared for or cannot handle. We make sure of that.

Anytime you are dealing with student loans or tax deductions and credits, any reputable service will tell you it is better to seek the counsel of a tax attorney.

It is too easy to get caught up in the IRS tax system of penalties and fees when innocent mistakes occur.

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How To Achieve Your Higher Education Goals

We’ve helped many young people and their families throughout the years with their higher education and financial planning that goes with it. We’re always committed to helping them receive the student loan tax credit they need.

This student loan tax credit helps you or your loved one achieve their educational goals and objectives. 

What’s needed most now is a plan of action. This plan of action ideally should occur years before you will need to pay for higher education costs.

But even if you are in the middle of paying tuition and expenses for college right now, we can still help you with your next best step.

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What Are The Next Steps?

  • We work at making sure you understand all the ways the tuition tax credit can apply to you.
  • We help you put together a financial schedule which meets your student loan repayment guidelines. That way you never have to worry about IRS problems and issues.
  • We introduce you to the above programs and more tax solutions which will provide a measure of peace for your student or yourself.

Parents should never have to get second mortgages to pay their child’s tuition. Students shouldn’t have to starve just to pay their tuition.

There is a perfect answer waiting for you right here. We have the guidelines to follow for your student loan tax credit.

We have the plan of action to help you chart the path you need to take. If you feel uninspired or overwhelmed, we are here for you.

Whoever has the dream, no matter how big the dream is, let us help you get there. We are one click away from your future becoming what you want it to be. Don’t wait. Call or contact us today!

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