If you take out student loans to pay for college-related expenses, you are probably wondering what to do with this information on your next tax return. Use this guide to get some answers and ensure you aren’t paying in more than necessary. 

A Q&A Guide for Understanding How Student Loans Affect Tax Returns

Should student loans be reported as income?

Under normal circumstances, student loans should not be included in your income total for the year. Including this amount could cause you to pay more taxes than required. Conversely, subtracting the loan amount from your annual income will likely earn an audit and future fines. 

However, if your loans were forgiven, the amount forgiven is considered taxable income. If this is your situation, speak with an accountant to determine if there is a way to avoid paying extra.

Can I deduct student loan interest?

If you made payments on your student loans last year and your modified adjusted gross income (MAGI) is less than $80,000 a year, or $160,00 if filing a joint return, you qualify for the student loan interest deduction. This is a non-itemized deduction and will reimburse up to $2,500 in interest payments made to lower the total taxable income.

Do student loans qualify me for any tax credits?

If you used your student loans to pay for tuition and related expenses, you could likely qualify for the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC). The AOTC will reimburse up to $2,500 for anyone currently pursuing a degree, who is enrolled at least half time, and who has not finished the first four years of higher learning education at the beginning of the tax year. 

If you’ve claimed the AOTC the maximum amount of four times or have already completed the standard four years, you probably qualify for the LLC. However, you must be enrolled at an eligible educational institution and cannot be claimed as a dependent by anyone else. 

Will my tax return affect future student loan payments?

Your adjusted gross income listed on your taxes will determine if the monthly payments on federal student loans decrease or increase. If you are married and file jointly, your spouse’s income will affect this amount. However, if they also have student loan debt, the payments will reflect each of your debt. Also, the income-based repayment plan can cap your total payments each month at a certain percentage of your income. 

When you need help preparing tax return forms, turn to the professional CPAs at Callen Accounting Group, PLLC. For nearly 50 years, they have provided personalized accounting services to individuals and small businesses in the Twin Lakes and Mountain Home, AR, area. They offer a full range of tax planning and preparation services to minimize liabilities and maximize cash flow. Visit their website to learn more about their services and call them today at (870) 425-6066 with any questions.