In the past 20 years, the cost of attending college has tripled and increased almost 8 times faster than wages. While public higher education is mostly a state responsibility, the federal government does incentivize continuing education through tax deductions and tax credits.
It might seem odd to start with retirement when you’re just starting on your career journey or only have a weekend job, but this is a valuable tax deduction for students in the long-run. Before picking a stock trading app to invest this money, make sure you do your stock market research first.
When you choose to sell your losing positions, you can harvest these tax losses to lower your taxable income. Each year, you can offset your capital gains with capital losses and claim up to $3,000 in losses against your earned income.
If you pay your own way for college, including tuition, fees, and other qualified higher education expenses, you may have the ability to claim the American Opportunity tax credit (AOTC) to lower your tax bill dollar-for-dollar.This credit can be worth up to $2,500 per year for four years of schooling after high school if enrolled at least half-time and working towards a degree.
If you aren’t claimed as a dependent on someone’s tax return in 2020, and you didn’t receive a check, you could claim the Recovery Rebate Tax Credit on your return. People received these payments last year as an advance payment, but technically it counts as a tax credit on your 2020 return.
To qualify for this deduction, you need to have paid at least $600 in student loan interest during the year and may deduct up to a maximum of $2,500 each year. Like most deductions and credits listed here, you will need to meet certain income limitations to claim this deduction.
If you attend college as an older student and earn a low-to-moderate income, you may also qualify for the earned income tax credit. The refundable nature of the credit means even if your tax bill falls below $0 (meaning you are due a tax refund), you can claim whatever negative balance the earned income tax credit produces.