Tax breaks can help students

Federal education tax benefits can save students up to $2,000 per year.

Amy Horst

After taking a course on taxes, University student Rob Amott embarked on a mission foreign to many young adults: He filed his own tax returns.

In addition to saving money on an accountant, Amott, a Carlson School of Management graduate student, said he found many benefits in filing his own taxes.

Among them was discovering a number of educational tax benefits that are unfamiliar to many University students but that could save a student up to $2,000 per year.

“Once I figured it out and started doing it on my own, it saved me a lot of money,” Amott said.

With the April 15 filing deadline less than two weeks away, tax experts have a few tips for students.

The most common student tax benefits are the Hope Scholarship Credit and the Lifetime Learning Credit.

First- and second-year students or their parents can use the Hope Credit to subtract up to $1,500 from their taxes.

The Lifetime Learning Credit allows taxpayers to subtract a maximum of $2,000 per return.

Since this credit works on a per-return basis, rather than a per-student basis, no family can get more than a $2,000 subtraction from it, said Eric Smith, a Minnesota Internal Revenue Service spokesman.

Both credits are restricted to taxpayers whose gross income is $51,000 or less – $103,000 or less for joint filers.

The federal government offers the Hope Credit on a per-student basis, which makes it particularly useful for taxpayers who are putting more than one student through college. If a family has two students in their first two years of college, they could get up to $3,000 off of their taxes with the credit.

“It’s probably generally true that if you can qualify for the Hope Credit you’ll want to use it because it targets the first two years of postsecondary education and can only be used twice,” Smith said.

One student cannot use the two credits at the same time, Smith said, but both can be claimed on the same tax return. For instance, parents filing for their children could claim the Hope Credit for a son in his first year of college, and the Lifetime Learning Credit for a daughter who is a senior.

Another benefit filers can claim is the tuition and fees deduction, which allows them to deduct up to $3,000 from their taxable income for college tuition and fees. Taxpayers cannot claim that deduction for a student already receiving the Hope or Lifetime Learning credits.

The tuition and fees deduction generally will not save taxpayers as much as the credits will, Smith said, but it can be beneficial for taxpayers who earn too much to qualify for the credits.

Smith said students who are not sure which benefit is best for them should look at IRS Publication 970 to see what will save them the most money.

Phil Lewenstein, Minnesota Higher Education Services Office spokesman, said students should educate themselves about what tax benefits are available.

“One benefit might be better for one person and another might be better for someone else,” he said. “But the main thing is if you’re aware of them you can pursue the one that’s best for you.”