About one in five Americans face student loan debt. Even if student loan cancellation doesn’t erase your debt, there are still ways to make the most out of your circumstances.
The IRS allows you to claim qualifying deductions to reduce your tax hit as you pay off those loans. If you want to understand how to make the most out of your deductions regarding your student loans, this blog post is for you.
Do I have to file taxes on student loans?
No, you don’t. When filing your taxes, you don’t need to include student loans as income because they’re not taxable, as you’ll eventually need to pay them off. As a rule of thumb, money received from sources such as loans, scholarships, or fellowship that are used to pay off your education are not taxed as long as they’re used toward tuition, fees and equipment, or books required for coursework. If you decide to use that money you received for room and board, research, travel or optional equipment or expenses, you'll need to report it as part of your gross income.
Additionally, if you benefitted from an employer student loan repayment program, any money you received after March 27, 2020 is not considered taxable income.
How do I deduct student loan interest from my tax return?
If you’ve repaid student loans during the last tax year, you may be eligible for the student loan interest deduction. If your interest payment exceeds $600, your student loan servicer will send you Form 1098-E, a student loan interest statement.
You can still deduct the interest if you paid less than $600, which is possible given that most federal student loan payments have been suspended interest-free since March 13, 2020. Contact your servicer to obtain the form or log in to your online account to determine the exact amount.
How can I qualify for education tax breaks?
You may qualify for additional tax credits if you paid for education expenses during the last tax year. Two such opportunities include The American Opportunity Credit and Lifetime Learning Credit. Receiving either credit could require as little as paying for qualifying costs like tuition and books with a student loan. Therefore, your school should send you a Form 1098-T to help track your qualifying expenses.
How can Taxfyle help?
It’s no surprise that taxes are complicated. It’s why there are people who dedicate their careers to understanding the intricacies of taxes and tax legislation. So, why should the stress of filing taxes be placed on you? That’s where Taxfyle comes in.
We take the hard part of filing taxes — sitting down and doing the busywork — off of your hands. Rather than spending hours sifting through documents and trying to cram the latest tax updates like you’re back in school preparing for a test, let an expert do the work for you.
After you answer some basic questions, you’ll be connected to a licensed accountant who has the necessary experience to file your tax return. This tax season, let the only return you think about be returning to your favorite vacation spot. Don’t worry; our Tax Pros have you covered.
