As local universities gear up for the start of the fall semester, college students and their parents are making preparations, too. College isn't just an adjustment to your way of life; it's also the start of a major financial obligation -- one that, if poorly managed, could find you paying student loan debt for decades to come. Ann Irons, a CPA who prepares tax returns for students in Bellingham, MA, shares tax tips for the coming school year.

Three Types of Scholarships

Even students who are awarded scholarships must be conscious of their tax obligations, which play a major role in determining whether you receive a refund or must pay additional taxes. Not all awards are reported in the same way. We can categorize scholarships as fully taxable, partially taxable, or tax-free.

Fully Taxable

These scholarships are awarded to students whose studies are not intended to work toward a degree; it also applies to fellowships. You must report the full amount on your income tax return, and you must do so even if you do not receive a W-2 form, and regardless of whether you incurred expenses associated with the scholarship funds.

Partially Taxable

Several education-related expenses other than tuition are subject to taxation when covered by a scholarship. Money from a scholarship can be taxed if it is used to pay for travel, room and board, and other expenses that aren’t necessarily required to enroll in courses. Taxable expenses also include research, equipment, and clerical help.

Tax-Free

Scholarship money is tax-free for students working toward a degree at an accredited university. You do not need to report scholarship money applied to your tuition, attendance and enrollment fees, and expenses for which each student in a course is held responsible. Textbooks, lab fees, supplies and equipment are non-taxable.

Take Advantage of Education Credits

Many students who fund their education partially through scholarships can also benefit from the Education Credit; others save more by claiming the American Opportunity Credit, valued at up to $2,500 and eligible for certain educational expenses. You may also qualify for the Lifetime Learning Credit, which allows you to claim up to $10,000 in education expenses once per year.

If It Costs Money, Save the Receipt

Students and their parents should keep detailed records of any and all expenses incurred up to and throughout college. Save copies of each receipt, even if you are uncertain whether it qualifies as a taxable or nontaxable expense. Thorough documentation will also help your Bellingham tax preparer determine which education credits apply to you. An organized filing system is also ideal for students who supplement their scholarships with student loans.

Need help filing taxes or weighing financial options? To learn more about our accounting and tax preparation services in Bellingham, or to schedule a meeting with Ann Irons, CPA, LLC, contact us at (508) 966-0700. We welcome individuals and businesses in Bellingham, Woonsocket, Medway, Milford, and the surrounding communities.