Tax benefits for college expenses?

Question

So this past year, I have held 2 jobs. One was a part-time job while going to school. Other was a tech summer internship. I am 22 years old, so my parents can claim me as a dependent. You can say my combined earnings for the year 2017 will be approximately $20,000.

During this year, I have paid $3600 for my last semester of undergrad and $9500 for my first semester of grad school. These expenses have been paid through my parents entirely and no student loans were necessary to be taken out to pay them.

When I checked the tax credit estimator and entered these details, I was looking at around $1400 in tax refunds. My college expenses didn't seem to make any difference because I was not paying my tuition through student loans. Is it true that no tax refunds will be given if I did not need to take out a loan to pay for my college expenses?

Answer 1

Is it true that no tax refunds will be given if I did not need to take out a loan to pay for my college expenses?

This may seem pedantic, but it seems worth getting the terms straightened out. Tax refunds are issued when your tax payments exceed your tax liability. Refunds aren't given for college expenses, but college expenses may qualify for some tax credits/deductions. Tax credits offset tax liability directly, while deductions reduce the amount of income that is taxable. You may or may not get a refund, but the important part is that a tax credit/deduction is reducing your total tax liability.

There is a deduction for interest paid on student loans, but it's better to not pay interest, so missing out on this is a good thing.

When it comes to reducing tax liability with education expenses there are 3 options:

1. American Opportunity Tax Credit
2. Lifetime Learning Credit
3. Tuition and Fees deduction

Each has limitations and rules about which expenses qualify, your parents will claim the best one that they qualify for, there's no double-benefit allowed. You can Compare Education Credits and Tuition and Fees Deduction on the IRS site or see if you are eligible for an education credit.

Since your parents can claim you as a dependent, they will claim the education credit/deduction.