One lesson college students can remember in school is how to file their taxes.
Uncle Sam offers students significant tax breaks on their education expenses, and this year, some students may qualify for credits for the 2021 stimulus check they never received.
Yahoo Money asked several tax professionals how they would advise college students who are doing their taxes for the first time. Here’s what he had to say.
Do you have to file too?
There is a certain income limit that students must meet before filing for taxes, according to Gena Jones, a certified public accountant and founder and CEO of Jones Tax Group.
“A student is only required to file an income tax return if their earned income exceeds the standard deduction of $12,550 in 2021,” Jones told Yahoo Money.
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Income from work study is also taxable. And part-time income matters as a gig worker, too.
“If the student is a gig worker, they must file an income tax return if their net income from gig work is $400 or more,” Jones said.
Filling out 1040 tax forms requires student workers to use information from W-2 forms they receive from their employers. Gig workers need to fill out additional information.
“A gig worker is treated as a business and must report their business income and expenses on Schedule C, which will accompany their personal income tax return, Form 1040. If students had side gigs during the previous year , then they have to fill out a 1099 form,” Jones said.
Stimulus check, anyone?
If you’re a college student, there are more good reasons to file taxes this year. If you didn’t receive the $1,400 stimulus sent in the spring of last year because you were listed as a dependent on your parents’ taxes, you can get that money this year if you file a federal tax return. Huh. Kristin Roberts, owner of Roberts Tax Group, said that if students had dependents in 2020, they can claim a 2021 stimulus check on their taxes this year.
“Parents can claim their children up to age 24 if they are full-time students and the parent still provides more than 50 percent of the student’s financial aid. If students file independently this year Yes, they can claim recovery tax exemption for their $1,400 stimulus check,” Roberts said.
(Photo Credit: Getty Creative)
Here Are Two Major Credits for Students
There are also two credits that students can claim on their taxes. The American Opportunity Tax Credit can be claimed by some students on the 1098-T tax form.
“Students may be eligible for the American Opportunity Tax Credit if you are still an undergraduate. Adjusted gross income must be less than $80,000. The maximum credit is $2,500,” said certified public accountant Jamie Barnes of Sherwood Tax & Accounting.
Eligible students must have been pursuing a degree at least part-time for at least one semester at the beginning of the tax year. They also must not have claimed the US Opportunity Tax Credit for more than four years and must not have been sentenced to a serious drug at the end of the tax year.
Another credit that students can claim is the Lifetime Learning Credit. Barnes explained that the credit goes to students who take courses to improve their job skills. Students can claim that credit on Tax Form 8863.
(Photo Credit: Getty Creative)
Lifetime Learning Credit is eligible for students who are undergraduates. Barnes noted that students who “achieve or improve on job skills and graduate degree programs after the fourth year qualify for a credit of up to $2,000”. They also stated that “student gross income must be less than $90,000 to qualify for the credit.”
Students may also qualify for Lifetime Learning Credits if they are enrolled for at least one semester. Unlike the American Opportunity Tax Credit, there is no limit to the number of times students can claim the Lifetime Learning Credit.
What about scholarship?
While scholarships are not taxable income, if students used scholarship money for something other than tuition, they must report that money as taxable income, says Armin Alajian, a certified public accountant with Alajian Group. According to.
“If you have a scholarship, you must report any portion of that scholarship that you used for anything other than tuition, fees, books and supplies,” Alajain said. “If you used part of the scholarship money for room and board, for example, report that portion as taxable income on Form 1040.”
Don’t Forget to Deduct Student Loan Interest
Even though there is an existing pause on student loan repayments for students until May 1, students who make payments on their loans can get a tax exemption on the interest they pay.
“If you’re currently paying off a student loan, you can deduct the interest you paid, and that amount is indicated on Form 1098-E,” Alajian said.
Barnes notes that students earning less than $65,000 per year can deduct a hefty amount.
“Students can deduct up to $2,500 of student loan interest paid on qualified education loans as an adjustment to income for college or vocational school expenses,” Barnes said. “This adjustment helps reduce their taxable income.”
Eligible students must be legally obligated to pay interest on student loans in 2021 and pay interest in 2021. Students may also be eligible for the student loan interest deduction if they are not filing separately from their spouse. Married students can also claim the deduction if they are not able to claim a dependent on someone else’s income tax return.
get help when you need it
While students can file taxes online, Jones recommends that they consult an accountant to help them with any questions they may have, especially if they are filing for the first time.
“When students need help with taxes, my first recommendation would be to use the services of their parent’s accountant. -Fathers will be more aware of the effects of being dependent. If they are not able to use their parent’s accountant, they should seek out an accountant who understands the unique concerns of students,” Jones he said.
Students can file for free with the help of a tax expert at hrblock.com.
If you can’t afford a tax professional, Volunteer Income Tax Assistance (VITA) offers free tax preparation for middle- to low-income individuals, the disabled, senior citizens, or those who have a language barrier.
Ella Vincent is a personal finance reporter for Yahoo Money. follow him on twitter @bookgirlchicago.
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