Recently graduated from college or attending college this year? Below are some tax tips for new graduates and future students.
Knowing handle to handle your student loans on your future taxes is step one to adulting. Below are some tips and information on how student loans can affect the your income and those who have helped you get to where you are.
1. Are student loans tax deductible?
Only the interest you pay is deductible (up to $2,500). It may not seem much, but it could take hundred of dollars of your total tax bill.
2. Credit card interest could be tax deductible
Crafty parents will help their kids build credit by opening a dedicated card towards education expenses. It serves as a dual purpose by helping kids establish credit, cashback bonuses, and helping them with a write-off. However, it is important that all the charges are education related. Otherwise, none of the interest will be tax deductible.
3. Student loan assistance through your job
One of the newest employment perks introduced into the marketplace has been employer assisted student loan payoff. Although this is a great perk, it is also considered income and subject to payroll taxes. Employers get around this by taking a loan payment matching. Make sure you consult with a tax professional prior to agreement.
4. Gifts from family
Let’s say your parents or a generous relative wins the lottery and offers to pay off your student loans. It would be a non-taxable gift for you, but there is a good chance that the person who gives you the fit may need to file a gift tax return and pay taxes on the monetary gift.
5. Student loan default
Always make payments to pay your student loans. Make deferment arrangements when you are approaching hardships. Default simply means when you cease to make payments on your student loans. This usually results in garnishment of your future tax refunds as well as your Social Security Benefits.
6. How to deduct student loan interest
You can write off a portion of the interest. Below are the rules:
· You paid interest on the loan during the year of filing
· You are legally obligated to pay interest on a qualified student loan
· You are not filing as “married filing separately”
· Your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 filing jointly)
· Neither you nor your spouse can be claimed as dependents on someone else’s return.
Federal and private student loans qualify if you paid at least $600 in interest. Your student loan provider will issue you a form titled “1098-E” which shows how much annual interest you have paid.
7. Student loan refinancing and the student loan tax deduction
Have multiple student loans? Most people consolidate to lock in a lower interest rate and to simplify the monthly number of student loan payments to one. The new consolidated loan should be eligible for tax deductions as long as all the monies were used for qualified education purposes and the combined amount doesn’t exceed the original values of the loans.
Still worried or confused? Call us for a consult to work through the odd nuances with student loans and taxes. We can provide you with an outline on how to possibly receive your first refund after school and apply it towards an additional student loan payment.