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Business as usual: student tax breaks

by Roman Adams, VP Accounting Club

 

As students, we are among a few groups of people in the United States who are not highly rewarded by the IRS for the pursuit of a higher education. Even on the basic tax levels, we are unable to claim a deduction for our loss of income due to our investment in schooling.

The hard-line approach the IRS takes towards students causes most of them to assume that tax breaks for education are totally nonexistent, but that is not correct. Current tax laws provide numerous ways for a student to benefit, from reducing tax liability to using credits and deductions to get a refund. The following are some deductions and credits that we, as students, might benefit from:

Hope Scholarship Credit(HSC)
The HSC can be claimed against your federal income taxes. Basically, it can reduce the amount of taxes you pay to the government. The HSC is offered to qualified students who have been enrolled in college at least part-time for at least a year. Students may take as a tax credit a percentage of the funds they spend on tuition and expenses, specifically 100 percent of the first $1,000 and 50 percent of the next $1,000 to a maximum credit of $1,500.

Lifetime Learning Credit (LLC)
The LLC can be claimed against your federal income taxes. Its very similar to the Hope Scholarship credit, but without time limitations on enrollment. The LLC is offered to qualified students currently enrolled in educational institutions. In 2002, students could claim a credit up to a maximum of 20 percent of the first $5,000 spent for tuition and other qualified expenses, or $1,000. After 2002, the credit rules changed and students can now claim 20 percent of the first $10,000 spent for tuition and other qualified expenses. This makes the LLC a much more attractive choice than the HSC. Even though the LLC and the HSC are fairly similar, IRS rules state that if students take one, then they cannot take the other. Students who are qualified for both should take the more attractive of the two.

Student Loan Interest Deduction
Up to $2,500 of student loan interest can be deducted. Although the deduction is only available for the interest payments made during the first 60 months of the loan, it is still a very attractive offer. There is one basic restriction: the person claiming the full deduction must have a modified adjusted gross income of $40,000 or less ($60,000 for married people filing jointly). People who make more than this amount must follow certain IRS guidelines on the amounts that can be deducted.

Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a refundable tax credit for people who are working but have a low income, which may include qualified students. To qualify for the EITC, a single person without children needs an adjusted gross income of $11,060 or less. It is recommended that students read IRS Publication 596 (http://www.irs.gov/pub/irs-pdf/p596.pdf) for more information about the EITC and who qualifies for it.

Tax Information
The Accounting Club at HPU is opening a table on Fort Street Mall, right in front of the Student Life next to the MP building: to help students understand their tax options. The table will be open for student questions from March 10 to March 14, 10 a.m. to 3 p.m.

 

 

 

 

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