Drowning In College Expenses? Consider These Tax Moves – Q&A Pro Series

What are some ways for college students to save on their taxes?

"The first one is the American Opportunity Tax Credit, and that's up to $2,500 in credit. And that is for the first four years of college. If they are working on a degree or you're working on a degree, you could get it or your spouse," says Lisa Greene-Lewis, CPA and TurboTax expert. "And then the Lifetime Learning Credit, that is up to $2,000 and that could be just for one class. It doesn't have to be towards a degree."

Greene-Lewis reveals tax tips about the American Opportunity Tax Credit, Lifetime Learning Credit, student loan deduction, 1099-K rules, and more.

Read the full Q&A below or watch the video above.

American Opportunity Tax Credit and Lifetime Learning Credit

Tracy Byrnes: Anyone that's sending a kid to college knows how expensive it can be. Forget the tuition. What about all the stuff they need for their dorm and their apartment and things like that? Thankfully, Uncle Sam is willing to give you a little money back. Lisa Greene-Lewis, TurboTax expert and CPA, is here with us to remind us of the credits, deductions, and things that we have to remember come tax time because these kids get expensive, Lisa, I have three of them. So let's first talk about some of these deductions that you can take.

Lisa Greene-Lewis: Yeah, so the first one is the American Opportunity Tax Credit, and that's up to $2,500 in credit. And that is for the first four years of college. If they are working on a degree or you're working on a degree, you could get it or your spouse. And then the Lifetime Learning Credit, that is up to $2,000 and that could be just for one class. It doesn't have to be towards a degree.

Student Loan Interest Deduction

Tracy Byrnes: So those are the credits. And then there's the student loan deduction.

Lisa Greene-Lewis: Yes, so the student loan interest deduction, that's up to $2,500 for student loan interest that you pay. Now, people need to keep in mind, if they were accustomed to this, they may see a lower student loan interest deduction because federal student loan payments were paused until August 31 of this year. So you may not have made as many payments as before. So that's just something to think about.

*Note: At the time of taping Federal student loan payments were paused until August 31, 2022, but on August 24, 2022, President Biden, Vice President Harris, and the U.S. Department of Education announced a three-part student loan debt relief plan that includes an extension of the pause on student loan payments until December 31, 2022.

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New Tax Rule for 1099-K

Tracy Byrnes: That's a great point, actually. So you're not thrown off come tax time. If you're using your 529 to pay for any of these bills, make sure they're specific, and you save your receipts if indeed the IRS comes calling. And one of the things that really caught my eye that you brought to my attention, Lisa, is this notion that the 1099-K rules have changed. And I think about my kids, lots of kids, they Venmo each other back and forth. And now you're saying they might get a 1099-K for doing that.

Lisa Greene-Lewis: Yes, there's a new tax rule for 1099-Ks. So previously if you had 200 transactions and $20,000, you would receive a 1099-K from a provider like Venmo or PayPal. Now it's reduced dramatically. It's $600 or more. So there's going to be a lot of people receiving this. And it's really for self-employed people, they are the ones responsible for reporting this. But as you said, Tracy, kids are paying each other through Venmo. Parents are even sending their kids money through Venmo. So that's something to be aware of. They could receive a 1099. They won't be taxed if they're not in business, but they might receive this and may have to prove that it wasn't business related. One thing to remember you don't need to know these tax rules. You can come to TurboTax and you can fully hand your taxes over to a TurboTax Live expert, and they'll do your taxes from start to finish.

Tracy Byrnes: Right, and I think that's really huge. And people should start thinking about that. And people are probably going to try to figure out other ways to send the kids money. But if you get it, just be prepared and know you heard it here first. Lisa Greene-Lewis, TurboTax expert and CPA, thank you so much for helping us out.

Lisa Greene-Lewis: Thank you for having me.