If you are or ever were a college student, you probably already know your way around the world of textbook savings -- buying used whenever possible. In fact, you might have even wondered what a fellow classmate was thinking when he came in with a new copy of a book if buying a used copy was an option. It could be that he just hasn't learned the strategies you have. The day you learned them, though, you likely never looked back. Well, that just might be what's happening with your taxes, except you're the student in need of learning a new money-saving tactic. It's true; your college debt can potentially save you money on your taxes. And, once you're in the know on how to take advantage of this savings opportunity, you won't ever leave the money you're due on the table again.
In this article, you'll learn about three savings avenues potentially available to you -- tax credits, tax deductions and savings accounts. However, let's do some cramming on the helpful definitions you'll need to know before you can get started.
- Tax credit - A tax credit is a set amount of money you subtract from your tax liability. Note that your tax liability is the same thing as your tax bill.
- Tax deduction - A tax deduction is a set amount subtracted from your income before your tax liability is calculated, which brings that amount down.
- Adjusted gross income - An adjusted gross income is your total gross income minus any deductions you're taking, such as a health savings account deduction.
- Modified adjusted gross income - A modified adjusted gross income is achieved by adding certain deductions back to your adjusted gross income.
- Dependent - A dependent is an individual, such as a child or elderly parent, for whom you are financially responsible. Your tax liability can be lowered by the credit you can take on your taxes as a result of this responsibility.
Now that you're familiar with these key terms, continue to the next section to learn about the Hope/American Opportunity and Lifetime Learning tax credits.