Students or Parents of Students

Determine who is allowed to claim the dependency exemption

College students who between 18 and 23 years old on the last day of the year are usually claimed as dependents on their parent’s tax return if they are enrolled at least half-time for 5 months of the year, they have not lived on their own for more than half of the year, and they are not paying for all of their support. The person who claims the dependency exemption is also the one who claims the education credit for a student.

Federal Grants or Financial Aid

This money is not considered taxable. It is also not included when figuring the amount of education credit.

Scholarships Received

If the scholarship was sent directly to the college, the amount will be applied toward tuition. This will reduce the amount of expense that can be used in figuring the education credit. If the scholarship was sent to the student, they can choose to apply it toward their education expenses or claim it as income and pay the tax. Unless the maximum education credit is already being received, it is usually better for a student to pay tax on scholarship income than apply it toward their education and thereby reduce their education credit.

Amount paid for tuition and fees

This is the total amount paid during the year by the student or someone else, regardless of what year the education is received. Tuition paid with a loan is considered as being paid with cash and can be included in figuring the education credit or deduction. Always verify your financial records with the information listed on the 1098-T provided by your college. If your records differ from the college and you have receipts that show proof, you can use your figures instead.

Amount paid for books and supplies

Students are able to include the cost of purchasing books, supplies, and equipment REQUIRED for the course when figuring their education tax credit. A computer and its components is only included in these expenses if it is required in order to attend the class. Always keep receipts for purchases. Keeping the class syllabus with your tax records is a good idea if it shows the required textbooks.

Parking expense

This may be deductible if the education is required by an employer. If scholarship funds are sent directly to the student, they can be applied toward parking or other student expenses. This allows more out-of-pocket dollars to be applied toward tuition, fees, and education expenses. Scholarship money used in this way is taxable, but if other income is low your tax rate will likely be 10% or you may owe no tax at all. Showing more cash paid for tuition, means a larger Education Tax Credit.

Travel mileage

If education is required by your employer as a condition of employment, the mileage traveled to school may be deductible, but only if you can exceed your standard deduction by itemizing. Because of this, most young college students cannot deduct their school mileage. If a mileage deduction is possible, you will need to keep a mileage log including the date and total miles each day. Mileage driving to or from your home directly is not deductible, only the miles between work and school.