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The tax deadline may be drawing to an end and maybe you’re still scrambling to file. But if you played your cards right, you might be sitting pretty and counting the minutes until the arrival of your tax refund…for being a student!
Before we list ways you can use your refund, let’s review the facts about the refunds. It’s no myth: you can save some money for being a student at an eligible college. It’s not just for full-time, traditional students; the deduction applies to working students and part-timers too.
Here’s the basic framework: if you’re attending an accredited school, they will send you a 1098-T form (also available on the IRS website) in the beginning of the school year. On the form, list any and all information relating to your educational expenses. This includes: tuition, payments received, student status and scholarships. Once you’ve filled out the forms you can file for your deduction—depending on which applies to you:
- Lifetime Learning Tax Credit: available to students taking at least one class at an accredited school—be it graduate or undergraduate. Under this deduction, students can receive up to 20 percent back of the first $10,000 they spend on education. Qualifications do exist: one’s income cannot exceed $52,000 and, if married, the combined income cannot surpass $105,000.
- Hope Scholarship Tax Credit: this credit applies to current sophomores or freshmen who are enrolled half-time or full-time. The same income stipulations apply as with the Lifetime learning tax. One could receive up to 100% back of the first $1,000 spent on education and 50% back of the subsequent $1,000. The returns cap at $1,500 back. Filers cannot posses a criminal record involving the possession of or distribution of controlled substances.
- Education Tuition and Fees Deduction: Finally, for those students who happen to make a decent living (and thus cannot apply for the above credits) you are still eligible for the above deduction. This policy allows singles with an income between $65,000 and $80,000 or families making between $130,000-$160,000 eligible for a $2,000 deduction on their educational expenses.
Note: in addition to the 8863 form, you’ll also need receipts for expenses for the semesters you attended and claim deduction.
Now the fun part—how to spend your returned money from Uncle Sam. Before you run to the slots, the bar or the mall, let’s at least consider what the other options are:
- Invest In An Emergency Fund: If you don’t already have one—or have at least a $1000 dollars in said account—you should run to the bank and get on it. One never knows what could happen; the economy is less than dependable and it never hurts to have a “hidden” stash when something unexpected comes up. If possible, open a high interest savings account (since it’s for emergencies, you may as well let it sit and accrue as much interest as possible). HSBC Direct and Emigrant Direct offer great online options.
- Pay Down Your Credit Card Debt: After investing in your crisis-fund, think about improving your credit by paying off lingering debt. Like a long overdue cleaning of your room, paying down debt does the body and soul good—not to mention your credit. First, eliminate the small debts. As you look to further climb your way into the black, next tackle the highest interest debt.
- Consolidate/Pay Off Student Loans: Essentially, the same as the above. To reiterate: pay back those whom you owe money. Doing so both empowers you and frees you to save money for the future. Plus, if you’re looking to buy a house soon or need to seek a loan for another reason, it’s best to have the old ones paid off.
- Really Plan For The Future – Retirement: Let’s face it, people like to retire as early as possible—and they should—for life is short and oh so sweet to savor. Thanks to improvements in medicine, health and technology, people are living longer. This means that current young adults may require retirement funds that could sustain them for up to 30 years (on average). Sure, you’re young, you have debt and you just want to own your own place before you’re 30 years old. But that doesn’t mean you can’t exercise a smidge of foresight. There’s lots of options when planning for one’s golden years whether it be an Individual Retirement Account or a Registered Retirement Savings Plan.
- Charity: In times when people are jobless and homes are foreclosing like “woah”, why not spare some of your refund check and give to your favorite charity or non-profit? When the times are tough, times get tougher for charities. You can always write-off charitable contributions.
- Finally Start Your New Year’s Resolution: As in getting on the health train! To start, invest in a home gym or buy a gym membership. There are also various tax-free, wellness funds one can open to have money set aside for alternative treatments that aren’t typically covered by insurance (i.e: acupuncture, massage, personal training etc). This way, should a health issue arise that causes you to seek alternative or preventative treatment, you have money set aside to help maintain your spunky, healthy state.
- Upgrade That Which You’d Otherwise Ignore: Need a new mattress or coffee table? Is your laptop freezing more often than it’s functioning? You might be getting by just fine, but if your debt is paid off, why not make some minor upgrades to your pad/personal appliances that could have a major impact on your home aesthetic, online productivity or—if you replace your mattress—your back.
- Start Up A Side Business For Passive Income: Doesn’t everyone dream of making money without working? Something as simple as an eBay store where you sell your old gear can garner you some money (depending on how cool your gear is). But even that enterprise can take a little money to get started when you consider shipping costs, packaging, etc. The Internet is rife with opportunities to make passive income—if you put the time in to isolating the information and taking action.