Its official. We are now less than two weeks away from April 15. Procrastinators of American can now begin their last minute hustle to getting their taxes filed.
If you happen to be a tax procrastinator with student loans, here are a couple things that you definitely will want to be aware of:
You can deduct some or all of your student loan interest. Tax professionals call this particular deduction an above the line deduction. What that means is that you can claim it regardless of whether or not you itemize (translation: it applies to everyone). This deduction is limited to $2,500 per year, but regardless of what bracket you fall in, it is a nice chunk of change to keep in your pocket.
In order to claim this deduction, log in to your account with your student loan lender and find a copy of your 1098-E. This is the tax form that shows exactly how much you paid in student loan interest for 2013. You also should have received a copy in the mail. It is important that you have this document for your records because you can’t simply deduct your student loan payments, you can only deduct that portion of your payments that went towards interest.
Married Couples with student loans need to do the math before they file. If you are married and you or your spouse has federal loans and is enrolled in the IBR or PAYE repayment plan, this tip is critical for you. The decision to file separately or jointly could have a huge impact on your IBR or PAYE payments for the next year. If you file separately, only one income will be used for determining how much you can afford on your student loans. If you file jointly, both incomes are used… which means a higher monthly payment.
Unfortunately, if you file separately, there are many marriage based tax incentives that you miss out on. This means that filing separately will result in a higher tax bill. The end result is a math question. Do you save more by filing jointly or do you save more by filing separately and only counting one income for your IBR calculation. To see how your filing status effects your payments, try the federal government’s loan payment calculator. Be sure to run it twice to see the difference between filing jointly and separately.
If you are on IBR or PAYE, lowering your AGI (Adjusted Gross Income) means lower student loan payments for the rest of the year. Be sure to check out our article on common ways of lowering your AGI. Even if it is too late to do it for 2013, 2014 is just getting started.