Tips to get the most out of your refund
Increased tax credits for college students

By Tracy Birch · The Mainstream
Published February 22, 2011

Although filing taxes can seem like just one more stressful thing to add to an already intimidating workload, this time of year can also be something to look forward to for cash-strapped students. More tax credits are available now, and most students are eligible to receive a refund. It just takes a little tax knowledge.

Students who think they made too little money should still file, according to Mark Oleson, director of the Financial Counseling Clinic at Iowa State University. He claims that failing to file is the most common error made, even if the process seems unnecessary.

Although some people may truly not have to file at all, this assumption should be avoided. Jann Sugrue of Liberty Tax warns taxpayers to always investigate whether a filing will be needed.

Several options are available to identify whether or not a tax return is required. One could call a Certified Public Accountant (CPA). Another option would be to call Liberty Tax, H & R Block or any other business specifically geared toward filing tax returns. These experts, after answering a few questions, should be able to put inquiring minds on the right track for tax filing.

Both www.irs.gov and www.student.gov are great sources of information for students paying taxes, as well as many other topics important to college enrolled people. To learn more about tax benefits for education at the irs.gov site, type ‘Publication 970’ into the search bar.

Some of the tax benefits students should take advantage of include the American Opportunity Credit, the Lifelong Learning Credit and the Higher Education Expenses deduction.

The American Opportunity Credit benefits students in the following ways: Income guidelines are expanded, as well as tuition related fees, and other required course materials have been added to the list of qualifying expenses. In the past, books usually were not eligible for education-related credits and deductions. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pay $4,000 or more in qualified expenses for an eligible student. Forty percent of the American opportunity credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit, however, to people who owe no tax.

The Lifetime Learning Credit helps parents and students pay for post-secondary education. For the tax year, students may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for anybody enrolled in eligible educational institutions. Generally, you can claim the lifetime learning credit if all three of the following requirements are met: You pay qualified education expenses for higher education, you pay the education expenses for an eligible student, AND the eligible student is yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

There is no limit on the number of years the lifetime learning credit can be claimed for each student.

However, a taxpayer cannot claim the American opportunity credit and Lifetime Learning credits for the same student in one year. Thus, the lifetime learning credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

The Higher Education Expenses deduction could be as much as $4,000 for families that meet the guidelines. If a person makes too much in the IRS’s eyes, they’ll get a reduced deduction. The downside: deductions usually give you less bang for your buck than credits. You get to subtract a credit amount from the actual tax you owe, whereas a deduction reduces the income you pay tax on.

Many students may wonder if financial aid counts as taxable income.

“No, it’s considered a loan; therefore it cannot be taxed unless the loan was used for expenses unrelated to education. Some grants and scholarships received may be considered taxable,” says Jann Sugrue of Liberty Tax.

For those individuals or families who need to file, the related expense can be hefty. But throughout this tax season, Liberty Tax (who has locations in Roseburg and Sutherlin) will be offering full-time students a flat rate of $100 to file taxes.

For students wanting a free way of filing, there are a few helpful websites like www.turbotax.com and www.taxhawk.com. Both of these websites guarantee 100 percent free filing for federal income taxes. But for state income tax filing, only TurboTax offers free filing for students. TaxHawk offers free state tax filing for low-income taxpayers.

Oleson recommends you take a leisurely weekend to do your returns. Then take the next week to seek any outside help and ask more questions.

“The sooner you start, the better off you’ll be,” advises Oleson. “If you have a tight spring schedule and can’t talk to someone for three weeks, saying that on Feb. 1 is a lot different than saying that in April.”

The deadline for taxes to be filed will be later than usual this year; it has been pushed forward to April 18, 2011.