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Student Loan Interest Deduction

As you make payments on your student loans, you may be accumulating a tax deduction for the interest paid. The student loan interest deduction is taken as an adjustment to income. You do not need to itemize your taxes to claim this deduction.

To help determine your student loan interest deduction, if your lender receives interest payments (not total payments) of $600 or more during the year on one or more of your qualified student loans it is required to send Form 1098-E (or acceptable substitute) to you by January 31st. You should refer to the current tax regulations at www.irs.gov for specific eligibility information. These regulations may change from tax year to tax year.

If you paid less than $600 in interest in any year and your lender does not send you a 1098E you can still claim your deduction.


Tax Credits

You (or a family member) may be eligible for one of two income tax credits for higher education called the Hope Credit and the Lifetime Learning Credit. A tax credit reduces the amount of income tax that is paid. Both of these education tax credits cannot be taken at the same time for the same student. Consider the differences between these tax credits to determine which may apply to you.

Comparison of Education Tax Credits

Hope Credit Lifetime Learning Credit

Up to a $1,500 credit per eligible student for qualified education expenses paid

Up to a $1,500 credit per return for qualified education expenses paid
Available ONLY until the first 2 years of postsecondary education are completed Available for all years of postsecondary education and for courses to acquire or improve job skills
Student must be pursuing an undergraduate degree or other recognized education credential Student does not need to be pursuing a degree or other recognized education credential
Student must be enrolled at least half time for at least one academic period beginning during the year Available for one or more courses
No felony drug conviction on student's record Felony drug conviction rule does not apply

To help determine your education tax credit, your college or university is required to send Form 1098-T (or an acceptable substitute) to each enrolled student by January 31st. 

 
 
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Adjust your W-4 annually to make sure you are not giving the government too much money.

Source: Bankrate.com

  
 

TEST YOUR KNOWLEDGE

 

Which of the following best describes the primary sources of income for most people age 20-35?

   
A.  salaries, wages and tips
B.  profits from business
C.  dividends from interest
D.  rent
 

Answer: A

  
         
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