Whether you itemize or not, you can deduct the amount you paid in student-loan interest, up to $2,500 per year.
Many young taxpayers miss out on tax-saving opportunities because they just aren’t aware of them. Here are some tax credits and deductions these folks shouldn’t overlook.
Student-loan deduction
Education borrowing is a big concern for many millennials. But, if you carry such debt, you might be eligible for the student-loan-interest deduction.
Whether you itemize or not, you can deduct the amount you paid in student-loan interest, up to $2,500 per year. This deduction has income limits, so check the eligibility requirements on the website of the Internal Revenue Service.
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Higher-education tax credits
If you’re in college, you should be aware that there are two popular programs to help pay for it: the American Opportunity Credit and the Lifetime Learning Credit.
The American Opportunity Tax Credit provides a tax break up to $2,500 per year. The credit is available for four years. The income limits for 2015 are $80,000 if you are single and $160,000 if you are married.
The Lifetime Learning Credit is good for up to $2,000 per year and it does not have a cap on the number of years you can claim it. For those who used up the American Opportunity Credit during their undergrad career, the Lifetime Learning Credit is useful for grad school. (You cannot claim both credits in the same tax year.)
In addition to the two credits, there is also a tax deduction of up to $4,000 in qualified education expenses. A tax credit is worth more than a deduction because the former cuts your tax bill dollar for dollar, whereas the latter only reduces your taxable income.
Health-savings account
If you have an HSA, any money you contribute gets you a tax deduction and reduces your taxable income. The contribution limits are $3,350 for an individual policyholder and $6,650 for family in 2015. That’s an increase from $3,300 and $6,550 in 2014.
Retirement account
Take a moment to increase your 401(k) contributions from your paycheck so that you receive a bigger tax break.