With CollegeBoard reporting rising full-time undergraduate tuition rates for the 2024-2025 school year, college expenses can clearly challenge any budget. That makes it worth looking for ways to at least cut your 2024 tax bill.
As a college student, you might qualify for significant education-related tax credits and deductions or even have access to tax-free funds to use for important costs. Your job situation and certain retirement accounts may also lead to tax breaks.
Read More: 6 Reasons Your Tax Refund Will Be Higher in 2025
Learn More: Why Skipping a Financial Advisor Could Be Your Biggest Money Mistake
Here are six of the best tax savings tips for college students.
Check for American Opportunity Tax Credit Eligibility
If you’re in an undergraduate program, the American Opportunity Tax Credit (AOTC) might cut your tax bill by up to $2,500 or provide up to a $1,000 refund. According to TurboTax, it covers money spent on tuition and expenses, like books and equipment, but not room and board.
This education credit has some strict rules. You can’t claim it after your fourth year of studies, and you must take at least a half-time load for one period or more at an eligible school. Plus, to get at least a partial credit, your modified adjusted gross income (MAGI) can’t be more than $90,000 if you’re a single filer or $180,000 if you’re a joint filer.
The school should send a 1098-T form that reports the year’s education expenses. The first $2,000 in education expenses can qualify for a 100% credit, and an additional $2,000 in expenses qualifies for a 25% credit.
Find Out: Here’s How Much Your State Collects on Every Type of Tax
Consider the Lifetime Learning Credit as a Backup
While the AOTC offers the bigger tax break, the Lifetime Learning Credit (LLC) is a nonrefundable alternative that could cut your tax bill by up to $2,000, or 20% of $10,000 in eligible education expenses. It’s a good backup option due to its more lenient rules.
While you still have to attend an eligible school for one period or more, there aren’t minimum course load requirements, and the LLC is available for unlimited years. Plus, various programs and training courses qualify as long as they’re for building job skills. However, the same MAGI limits apply to get at least a partial credit.
Deduct Your Student Loan Interest
If you made student loan payments in 2024, the IRS allows deducting up to $2,500 in interest paid as long as you took that loan out for legitimate educational purposes.
There are a few rules to be eligible, including not being someone’s dependent and not exceeding the 2024 MAGI limits of $95,000 for single filers and $195,000 for joint filers. Additionally, the deduction is gradually reduced based on your MAGI.
The loan servicer will often send a 1098-E form with the interest amount. If not, check your loan statements or online loan account for this information.
Take Advantage of Education Savings Account Funds
Whether you or your parents opened the account, you can use funds in a 529 plan or Coverdell education savings account for college expenses, like tuition and textbooks. Plus, you don’t have to pay taxes to withdraw that money as long as it goes toward eligible expenses.
This tax benefit makes education savings accounts a more attractive funding source than retirement accounts you might feel tempted to tap into. Just keep in mind that you’ll usually need to use any remaining Coverdell account funds by age 30, per the IRS.
Write Off Expenses for Side Hustles
According to the Lumina Foundation, the majority of college students also have jobs. You might have gone the self-employed route for flexibility and started freelancing, delivering meals or tutoring other students.
Many business expenses related to this work are deductible on your Schedule C. Some examples could include business mileage, self-employed health insurance, equipment, home office use and even cellphone expenses.
Make sure to have documentation backing up deducted expenses and avoid writing off any non-business portions. If it’s your first time filing a self-employed return, working with a tax professional may be wise.
Boost Contributions to Tax-Advantaged Retirement Accounts
To both potentially save on taxes and make progress toward building wealth early, consider contributing to available tax-advantaged retirement accounts as a college student.
While pretax money put into a traditional 401(k) simply lowers your taxable income, traditional IRA contributions are deductible up to the IRS limits based on your filing status, MAGI and any employer plan coverage. Roth IRA contributions involve after-tax funds and won’t reduce your 2024 tax bill, though future tax-free withdrawals are possible.
If you weren’t a full-time student for at least five months during the year, you might also qualify for the Saver’s Credit. It’s worth up to $1,000 for a single filers and $2,000 for joint filers.
More From GOBankingRates
- 4 Subtly Genius Moves All Wealthy People Make With Their Money
- 3 Signs You've 'Made It' Financially, According to Financial Influencer Genesis Hinckley
- Renting vs. Owning a Home: Which Will Be Cheaper in 2025?
- 4 Unusual Ways To Make Extra Money That Actually Work
This article originally appeared on GOBankingRates.com: 6 Best Tax Savings Tips for College Students
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
