As the first month of the new year has slipped away, you may have noticed the advertisements that start to pop up every year around this time: those for tax services. Tax season is indeed upon us. If you made a New Year’s resolution to procrastinate less, surely you won’t wait until the night of April 14 to file your 2013 tax return, right? Instead, you’ll gather your W-2s, 1099s and, if you’re in school, your 1098-T tuition statement, and either file your taxes yourself or head for a tax professional. But before your file, make sure you’re informed about tax credits, deductions and tuition statements as they pertain to college students. Whether the student is you, your spouse or your dependent, it’s worth checking – are you taking advantage of all the tax options available to you?
What is the difference between a tax credit and a tax deduction?
Both tax deductions and tax credits can reduce your income tax liability. Tax deductions reduce the amount of taxable income you claim. For example, if you own a home and make mortgage payments, the payment on the interest usually is tax deductible, meaning you can deduct the amount of these payments from your annual income and lower the amount of your income that will be taxed.
A tax credit directly reduces the amount of income tax you owe. See the next question for an example of a tax credit.
What are the Lifetime Learning and American Opportunity tax credits?
By lowering how much income tax you owe, these education tax credits help off-set the costs of going to school. Education tax credits are based on qualified education expenses, such as tuition, student fees, books and supplies. These can be used for your own expenses, or those of your spouse or a dependent and can be for as much as $2,500. For more information on these tax credits, view IRS Publication 970 at www.IRS.gov/publications/p970 or consult a tax professional.
What is the 1098-T and when should I expect to receive it?
Educational institutions participating in Department of Education student aid programs are required to submit the 1098-T to help determine student eligibility for education tax credits like those discussed above. Institutions must report either payments received from students (Box 1 of the form) or amounts billed to students (Box 2) for tuition and related expenses. The directions on the form will assist you when completing your tax return.
You should have received your 1098-T by now since institutions have until Jan. 31 either to mail or provide you an electronic version of the form.