Tax Deductions and Credits for College Students to Save Money

To understand how you might take advantage of these tax deductions as a college student or recent graduate, we’ve gathered 7 tax deductions and credits you should know to save the most money on your tax bill this year.

Tax deductions work to reduce your taxable income.

Tax credits work to reduce your tax liability dollar-for-dollar.

What is a Tax Deduction VS.  a Tax Credit?

1. Retirement Account Contributions (IRA)

Regardless of how you choose to invest, the tax code awards this behavior by offering you the ability to deduct your contributions from your taxable income if you make them into a traditional IRA. You can contribute $6,000 per year or your earned income, whichever is greater.

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

This credit can be worth up to $2,500 per year for four years of schooling after high school if enrolled at least half-time and working towards a degree. To claim the full credit, you can claim the first $2,000 of qualified expenses and then up to 25% of the next $2,000, or $500, totaling $2,500.

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.

5. Recovery Rebate Tax Credit

As part of the CARES Act, many Americans received a stimulus check or two. If you aren’t claimed as a dependent on someone’s tax return in 2020, and you didn’t receive a check, you could claim the Recovery Rebate Tax Credit on your return.  

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