What a deal—you increase your education and you tax liability may decrease.
You have a student loan for furthering your education which is a valuable commodity. The education can pay off later with a good job at a higher income for your knowledge.
With tax time approaching the student loan may make you eligible to deduct up to $2,500 of the interest you paid on the loan last year. This deduction will help reduce your taxable income, possibly giving you a smaller tax bill.
How do you file? You will have to use either Form 1040A (line 18) or Form 1040 (line 33) to take advantage of this deduction. You don’t have to itemize deductions to get this break, but it’s not available to Form 1040EZ filers.
There are some restrictions such as if you can be claimed as an exemption on anyone else’s tax return, you’re ineligible for this deduction, no matter what your filing status is.
Another filing status restriction is if you’re married, you cannot file separately and get this tax break. Married couples must file jointly to claim the student loan interest deduction.
There are student and school qualifications. The student for whom the loan was taken out must be you, your spouse or a dependent. A dependent, for tax purposes, is someone who receives most of his or her support from you.
The IRS also demands that the qualifying student be enrolled at least half-time in a program that leads to a degree, certificate or other educational credential.
The school also must be an eligible educational institution. This is a college, university, vocational school or other post-secondary establishment that meets student aid program guidelines administered by the U.S. Department of Education.
In addition to the above there are guidelines on the loan. For example, you must have taken out the loan solely to pay for educational expenses. This means you can’t tack on schooling costs to a personal loan and expect the IRS to approve the interest deductibility.
The loan, and any interest paid on it, cannot be from a related person. Neither can you deduct interest you paid on a loan you got from a qualified plan offered by your employer.
You must use the loan to pay qualified higher education expenses. These include tuition and fees, room and board, books, supplies, equipment, and other necessary expenses, such as transportation.
These expenses must have been incurred or paid within what the IRS calls a “reasonable period of time” before or after you got the loan. This generally means the costs can be traced to a particular academic period, such as a semester, trimester or quarter. The IRS also accepts schooling payments made within 90 days before the start or after the end of that academic session as reasonable.
You may be asking yourself if there are any other regulations, the answer is yes. The next category is income limits.
The IRS limits the student loan interest deduction if you make over a certain amount. For 2005 tax returns, the amount of your student-loan interest deduction is gradually reduced if you are a single, head of household, or qualifying widow or widower filer with adjusted gross income between $50,000 and $65,000. The income phase-out range for married couples filing jointly is $105,000 to $135,000.
Once you go over the filing range for your status, you cannot take any deduction for your student-loan interest.
For more details on the deduction for student loan interest, check out chapter four of IRS Publication 970, Tax Benefits for Education.
Are you still looking to find ways of putting money into your pocket? You could do a Web search for unclaimed property.
Unclaimed property can include utility deposits, uncashed payroll checks, stocks, child support payments, IRS refunds, matured or terminated insurance policies, savings accounts abandoned or safe deposit box contents.
Unclaimed money and property in excess of $25 Billion is being held by the government and is just waiting to be claimed.