Written by Sarah Higley.
Death and taxes — some people say these two things in life are the only guarantee.
For students, there are tax benefits for people pursuing higher education. Something called an education credit helps those with the cost of attending college. It reduces the amount of tax owed on your tax return, according to the IRS website.
The American Opportunity Tax Credit is one of the two education credits available.
“The American Opportunity Tax Credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education,” according to the IRS website.
All students can be eligible for the American Opportunity Tax Credit, according the IRS website.
“You can get a maximum annual credit of $2,500 per eligible student,” according to the IRS website. “If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit refunded to you.”
The deadline to file taxes is April 15th of every calendar year.
The question is what is the smart thing to do with a tax return?
For many students, a tax return can be upward of a few thousand dollars, which is a significant amount of money for poor college students on an unstable income, according to the IRS website.
The first thing to do with a tax refund is put it into a savings account and try to build up an emergency fund. Savings accounts can be hard to start and maintain but can be very helpful in times of need or in a big emergency, according to the Money Crashers website.
“After establishing an emergency fund, the next best thing you can do with your tax refund is to pay off any high-interest debt that you’re carrying,” according to the Money Crashers website. “If you have a lot of debt, just putting money in savings is like borrowing money from yourself.”
Because many students rely on student loans to pay their tuition, it is a good option to use a tax refund on educational debt. Paying the interest only, or a few hundred dollars, can be helpful in getting ahead before graduating, according to the Money Crashes website.
“I think a lot of people feel like they have to spend it,” said Riley Burbank, a senior studying music. “I would save it for a rainy day in case something comes up.”
Of course it is important to have some much needed fun and spend some funds on yourself and personal needs. As students, however, it is important to use tax returns wisely as most students are short of funds.
There are many options that can benefit students by spending tax returns wisely, such as paying an extra car payment, paying off credit card debt, getting some type of insurance or even making an investment, according to the Money Crashers website.
If death and taxes are your only guarantees in this life, then it is important your tax money is spent well.