Being young and single is great, except when April 15 rolls around. Married couples get better tax rates on their income, and people with kids get extra deductions. Few students own a house, so there's no mortgage-interest deduction to take. All the same, you do have options for write-offs to whittle down your tax bill.
If your parents no longer claim you as a dependent, you can write off up to $4,000 of your tuition and fees on your 1040. You have to be enrolled for at least one course in a school that accepts federal student aid, but almost all post-secondary educational schools qualify. The deduction applies to tuition and fees; room, board and textbooks get you no refund. If you took out a loan to pay your college bills, you can still write off the expenses you paid. You can only write off tuition up to the $4,000 limit -- above that, nothing.
American Opportunity Credit
As of 2012, the American Opportunity Credit lets you cut your tax payment -- not your taxable income -- by up to $2,500. If you're an undergrad and enrolled at least half-time, you can deduct all of your first $2,000 in expenses and 25 percent of the next $2,000. If your credit exceeds your tax bill, you can get up to 40 percent of your credit as a refund. The credit covers books, supplies and equipment for your courses as well as tuition and fees.
Lifetime Learning Credit
The Lifetime Learning Credit only gives you a $2,000 tax cut -- 20 percent of your expenses up to $10,000 -- and it only applies to tuition and fees. You only have to take one course a year to qualify, though, and you can claim it as many years as you wish. The American Opportunity Credit is only good for four tax years. You can't take both credits in one year, or one credit plus the tax deduction -- you have to pick one.
You can only deduct fees if paying them is necessary to attend school. If the school charges a fee to use the student union, but paying the fee is optional, you have no valid deduction. Some expenses, such as insurance and medical bills, are never a valid deduction, even if the college charges a mandatory student-health fee. If you have a high modified adjusted gross income, that reduces the amount you can write off -- but that's not a problem for most college students.
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