How to Ease Off Student Loans by Incorporating Them in Your Taxes
On average, the estimates show that about 40 million Americans are owed student loan debt. Despite the best efforts by many to pay up their loan debts ASAP, there’s been a notable increment in interest charged.
Luckily, the government has expressed interest to ease the current situation. As the tax season fast approaches, a couple of tips to ease off your student loans by incorporating them in your tax returns could come in handy.
If you happen to still be in school, you could benefit with a couple of extra credits. Good knowledge about how student loans work could come in handy as you peruse the guide.
Write Off Paid Interest
There’s no better feeling than knowing that you can lower your tax bill by simply writing off interests by citing them as deductions.
Impressively, you don’t have to itemize it in order for this to kick in. Special attention cases involving those who have made $600 or more in interests are usually issued with a Form 1098-E by the supervising loan official.
According to Eric Bronnenkant, charged with overseeing taxes at Betterment, individuals with below $600 figures can still benefit from the deductions. He pointed out that the key difference was that such instances don’t require the filing of tax forms. As such, Bronnenkant shared that everyone should get aboard and benefit from it.
Tax Returns as a Dependent
If you’re close with your parent and they have you listed as one of their dependents, it’s impossible to deduct interests accrued from student loans from the next taxable amount.
In his address, Bronnenkant pointed that out that individuals who are helped out by another party chipping in to sort their student loans, need not be afraid to apply for interest deductions.
Bronnenkant shared people aged 25 and above who are living on their own can take advantage of the reductions which greatly favor the receiving party. Usually, parents and grandparents get involved in helping their children clear student loan debts.
In the instances they do, Bronnenkant opined that legally, the contributions are seen as gifts which can accrue interests. In light of this, the recipients can apply for interest deductions.
Within financial circles, a marriage penalty is a moniker given to the sum total tax bill presented to couples who file joint tax returns. In most scenarios, joint filing tends to produce a much more expensive tax bill than when couples go their own ways as they file taxes.
If you’re in school, you stand a good chance of benefitting from student loan taxes. Indeed, this is quite possible despite the fact that those who go to school aren’t required to pay up on student loans.
Lifetime Learning Credit
Usually worth about $2,000 per annum, the lifetime learning credit has a few requirements that need to be met before students are awarded.
- Credit offered takes care of books, tuition fees, and supplies for students in campus.
- There’s no limitation on the number of hours students need to enroll to pursue a profession in college.
The American Opportunity Credit
This tax credit option gives you the equivalent of $2,500 per student every annum. However, every student can only claim it for a maximum of 4 tax years. To qualify for one, you need to:
- Be a regular at school for at least one academic term or spend about half your time there.
- No more than 4 years of an academic program needs to have passed after high school.
- The academic program being pursued must either result in the award of a degree or a fitting credential.
This can massive repercussions including tax returns being withheld and your credit loan being affected. To avoid this, Josh Zimmelman, the top kahuna at Westwood Tax & Consulting, recommends that taxpayers need to make moves beforehand in preparing a plan to repay or enlisting for a forgiveness initiative.
In the conventional scenario, defaulting on a student loan doesn’t raise any red flags. However, once 90 days are past due, the situation gets reported to the 3 main credit bureaus. Further delayment of up to 270 days create a scenario that no one can go back to. Credit is damaged and any hopes for forgiveness, deferment application, or forbearance is practically impossible.
Having a tax officer to assist you in making student loan payments can go a long way in better managing the costs involved. Else, you may find yourself unable to qualify for settlement or a hardship initiative.
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