7 Tax Deductions and Credits for College Students to Save Money
What is a Tax Deduction vs. a Tax Credit?
Tax deductions work to reduce your taxable income.
Tax credits work to reduce your tax liability dollar-for-dollar.
1. Retirement Account Contributions (IRA)
Regardless of how you choose to invest, the tax code awards this behavior by offering you the ability to deduct your contributions from your taxable income if you make them into a traditional IRA.
2. Capital Gain Losses
If you trade stocks in a taxable account, you hopefully only make gains. But, we live in a realistic world. Not all of our investments will turn out to be winners.
3. American Opportunity Tax Credit
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.
4. Lifetime Learning Credit
This credit does not carry a minimum enrollment amount (meaning you don’t need to be enrolled at least half time), and you don’t need to work towards a degree.
5. Recovery Rebate Tax Credit
As part of the CARES Act, many Americans received a stimulus check or two. 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.
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