Get your W-2 yet? We’re sharing the student loan tips that’ll help you get more from this tax season. Read on and save.
Tax season is upon us and although it’s not exactly something we enjoy — it’s something we have to do.
Yes, even you students.
A student doesn’t fit into the exception because there are few things that could be claimed:
- Tax credits
- Tax deductions
The deadline to complete your taxes is Tuesday, April 18th for 2017. School may be taking up a good deal of your time and you may be pushing it off but don’t let it get down to the wire like you do when cramming for those finals.
This article will give you a nice mixture of information about doing your taxes and student loan tips to maximize your return when handing the information over to the IRS.
Let’s get started…
First Things First: Collect Your Data, Get Real, and Apply These Student Loan Tips
Filing your taxes before you receive all of your forms is a major mistake and opens up the chance that you’ll be audited by the IRS. Don’t do this.
The first student loan tip goes right into collecting the important data to hand over to your tax preparer:
- Last year’s tax return
- College expenses (including tuition, loans, and interest)
- W-2’s (from ALL employers)
- 1099 forms (if you are doing side gigs)
- Other income (example: unemployment, social security, investments)
- Other expenses (example: child support, alimony, etc)
The more data you bring in results in more opportunities for the professional to find your correct filing for bigger returns.
It’s at this point you may also want to assess your finances in general.
People tend to shy away from budgeting and improving their personal finance knowledge because it all seems convoluted especially when it comes to taxes. However, now is the perfect time to get real about your income, expenses, and especially those student loans.
Take a bit of time to read up about the terms of your loans and tax rules. See if a professional is willing to walk you through a majority of the process so you can understand how taxes actually work.
You may find you’re taking on entirely too much with your student loans, all-the-while having plenty from your main work or pursuing grants to continue your education.
Enough lecturing for now…
Now: Maximize Your Taxes and Student Loans
There are dozens of factors to consider prior to approaching your tax preparer, including:
- Those that have recently tied the knot may want to choose which individual will claim the tax breaks
- Debt relief scholarships, grants, and outright forgiven debt can be taxable so it’s important to talk with professionals and hand over all the details
- A change of repayment programs such as with the new REPAYE program
- Whether you accepted the American Opportunity credit, Lifetime Learning credit, or taken on a scholarship/grant that goes toward paying housing and general expenses which would be taxable
- What you may have got yourself into when you took on student loans
With that being said — let’s take a look at a few different strategies and student loan tips to maximize your tax return and tackle those student loans:
- Student Loan Interest Deduction – The interest on your student loans can be a deduction on your taxes up to $2,500 as long as you claim yourself as a dependent (aka parents didn’t claim you on theirs).
- Non-Taxable Gifting – A friend or family member that steps in and decides to pay for your student loans can do so as a non-taxable gift meaning it won’t fall on you.
- Work-Related Education – Those that invest in maintaining or improving their work environment skills have an opportunity to make a deduction as long as it’s not toward the bare minimum requirements.
- Personal Credit – Items used specifically for your education you purchased on a credit card should be presented.
Outside of the typical deductions, you may also want to consider working closely with a trusted CPA versus trying to file on your own or through one of the major chains which often rush you through the process.
A CPA is especially helpful if you are balancing school, work, and side gigs. The additional income you earn on the side (including tips) will need to be deducted but often you may claim such things as workspace, travel, and work-related expenses (such as buying new hardware) if you are self-employed.
Talk with a professional soon so they can start on your filing else you may be asking…
But: What If I Owe Taxes?
There may be some situations where you end up owing the IRS when it comes tax time such as if you chose not to withhold your earnings or if you need to claim work from a side gig (outside of your work — such as freelancing).
There’s an odd myth that you can spend jail time if you owe taxes: false.
Yes, you can potentially see legal troubles if you cheat or trick the IRS but simply owing on your taxes and not being able to pay immediately isn’t going to have you behind bars. You have rights.
What will happen is that you’ll begin to receive letters from the IRS requesting payment. It’s best not to ignore these.
You do have options:
- Consider mitigating the damage caused by student loans through a deferment or forbearance via student loan forgiveness programs and services
- Ask your tax preparer to request a payment plan (and make sure it’s set to a budget you can handle)
- Carefully consider taking on a low APR loan or acquiring a credit card (again with a low APR) to pay else reach out to friends or family
There is a possibility that you will be placed in the Treasury Offset program depending if you had defaulted in your student loan payments. In this situation, the IRS will automatically take your tax return and apply it to your federal student loan. It may catch you off guard but it does help with repayment especially if you keep the tax return out of sight and out of mind from the get-go.
It’s not the end of the world if you can’t pay right away because you have these options (and a good, working list of student loan tips). Student loans can quickly add up on their own — the added stress of having taxes alongside them can be stressful but doable if you’re willing to buckle down and take action.
How do you plan to do taxes this year when incorporating your work, side gigs, and student loans? Share your experiences and any other student loan tips in the comments below!