Some things in life might be painful, but paying taxes doesn’t need to be.
What some students don’t know could cost them money when they file their tax return this year.
“Scholarships and grants for students aren’t tax-deductible, but any tuition paid out of pocket could be, and that’s something a lot of students aren’t aware of,” said Tara Thompson, Jackson Hewitt Tax Service assistant office manager.
Many college students may be eligible for tax breaks such as the Hope or Lifetime Learning credits, but may not claim them if they file their returns late or in a hurry. This can cause them to lose out on the full tax refund to which they are entitled.
Thompson said her office is heading into the peak period for filing, and that the standing rule is that easier tax returns are filed early, and more difficult ones are filed immediately before the cutoff date each year. Procrastinators who file their own returns can often overlook allowances like education credits that students may be eligible to claim.
Designed to make obtaining and continuing one’s college education easier, both credits offer specific financial benefits, but each has its own set of rules and guidelines for determining eligibility.
According to the IRS Web site, the Hope Credit is an education tax credit designed to reduce costs during the first two years of college. This credit offers up to one $1,500 credit per eligible student per year. The student must be enrolled at least part-time, and must be enrolled in an undergraduate degree-seeking program, or another approved field of vocational training. In addition to restricting eligibility for the credit to students in their first two years of college, the credit excludes those students who have felony drug convictions.
The Lifetime Learning Credit applies to undergraduate, graduate and professional degree courses, including classes to gain or improve job skills. For those who qualify, the credit will equal 20 percent of the first $10,000 of post-secondary tuition, for a maximum credit of $2,000 per tax year. Students who claim this credit are not required to be enrolled in a degree-seeking program, and drug convictions have no bearing on eligibility.
The IRS lists Publication 970, which details tax benefits for higher education, as the starting point for finding out if a student meets the criteria for either credit. Students must use IRS tax form 8863 to claim either the Hope Credit or the Lifetime Learning Credit on their tax return, but may not claim both.
Jeremy Hooyer, a University of Alaska Anchorage junior, said that although he knows the earlier one files the better, he always manages to fall behind.
“You should file sooner than later, but I don’t practice what I preach. I wait until the last minute every year. I am a procrastinator by nature, but I always seem to get it done by the deadline,” Hooyer said.
He said he files his tax return online, using standard tax software.
“The software’s very easy to use,” Hooyer said. “It walks you through step-by-step what you need to put where, and I recommend it to anybody that’s even slightly computer literate. I’ve been filing online for the past four years, and fingers crossed, I haven’t been audited yet.”
Sophomore Diane Swonger says she views tackling her taxes as a chore she tries to finish as soon as possible. She used her mother’s TurboTax software program and filed her tax return online three weeks ago.
“I filed early because, between my job as a resident advisor at East Hall and going to school, I’ve been very busy,” Swonger said. ” I just needed it done, and I didn’t have time to prepare it. So I gave all my information all to my mom and she organized it. I did the rest from there.”
Swonger said filing early and reviewing your return can make the difference between paying or being paid.
“Do your filing early and definitely be prepared,” Swonger said. “Keep all the stuff you think you’ll need for your taxes in one spot organized, because it goes so much faster when you have it all right there instead of scrambling for it, and missing something in the process.”