7 Tax Deductions and Credits for College Students to Save Money
In the past 20 years, the cost of attending college has tripled and increased almost 8 times faster than wages. While public higher education is mostly a state responsibility, the federal government does incentivize continuing education through tax deductions and tax credits.
What is a Tax Deduction VS. a Tax Credit?
Tax deductions work to reduce your taxable income.
Tax credits work to reduce your tax liability dollar-for-dollar.
1. Retirement Account Contributions (IRA)
It might seem odd to start with retirement when you’re just starting on your career journey or only have a weekend job, but this is a valuable tax deduction for students in the long-run. Before picking a stock trading app to invest this money, make sure you do your stock market research first.
2. Capital Gain Losses
When you choose to sell your losing positions, you can harvest these tax losses to lower your taxable income. Each year, you can offset your capital gains with capital losses and claim up to $3,000 in losses against your earned income.
3. American Opportunity Tax Credit
If you pay your own way for college, including tuition, fees, and other qualified higher education expenses, you may have the ability to claim the American Opportunity tax credit (AOTC) to lower your tax bill dollar-for-dollar.
4. Lifetime Learning Credit
The Lifetime Learning Credit can help pay for undergraduate, graduate, or professional degree courses. This credit does not carry a minimum enrollment amount (meaning you don’t need to be enrolled at least half time), and you don’t need to work towards a degree.
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