Keeping Your Financial Aid Free of Taxes

College can get expensive and thousands of students each year work hard in order to nab the limited amount of scholarships and grants that are available to help them lower the cost of getting their degrees. While receiving some of this financial aid can really help to take some of the stress off you during school, you need to understand the tax implications of using this aid and ensure that you are using it in the proper way so it doesn’t penalize you at the end of the year.

Most college students do not realize that they can actually be taxed on their financial aid if they don’t use it for the right things during college. Make sure that you stay in the clear, and save money, by talking to our professionals at Coastal Business Services. We can help you to get the most out of your financial aid while reducing your college and tax bill this year.

Understanding  Scholarships and Grants

If you are preparing to go to college for the first time, either as a traditional student right out of high school or a nontraditional student looking to learn a trade, you have probably spent a lot of time looking for scholarships and grants that can take off some of the financial burden that college will put on you. Scholarships and grants can help to alleviate some of this burden and makes college more affordable for many people. But there are some rules in place that help determine whether this aid is actually free or if you will need to count it in your personal income during tax season. In most cases, if you use the money for approved educational expenses, such as tuition and books, you will be able to avoid counting the aid as personal income. On the other hand, using the money for room and board, to travel, or anything else will mean you have to count it as personal income.

When  Can I Avoid Taxes?

There are many times that you will be able to get a scholarship or fellowship grant and not have to pay taxes on the money. In most cases, students will not have to worry about paying this money into the IRS unless they get a lot of financial aid or they start to use it outside of the purpose of their studies. Some of the things that you are able to use your financial aid for without counting it as personal income include:

• Tuition and fees—this is the amount that you will pay in order to attend and get graded in the class. This is usually based on the amount of credits that each class is worth and then some classes have fees for labs or other special things that go along with the class.
• Books—any books that you need to use in order to study for the class can use financial aid money. These are critical to allowing you the opportunity to study in your classes and so you can count them.
• Equipment—if you need special equipment for your studies you can use your financial aid for these as well. This can get tricky. For example, if your school requires you to have a computer in order to attend, you can use your financial aid for this and not be taxed on it. On the other hand, if you would just like a computer to help make studies easier, but it’s not a requirement of the college, you will need to count that money as personal income.

If you are uncertain about whether a certain fee or a certain piece of equipment will count in this category, make sure to contact the professionals at Coastal Business Services to help you out with this complicated piece of tax law.

When  Must I Pay Taxes?

Anytime that you are using your financial aid for non-educational purposes, such as for room and board, you have to count the money as personal income. In many cases, if you receive the money because of some kind of work, such as teaching or performing research, you will be required to count the financial aid as personal income on your tax return as well. It is important you keep track of how much of your financial aid you are using for non-educational purposes so that you can fill out your tax return properly.

Getting  Help with Filing Taxes

If you receive any sort of financial aid to help pay for your educational costs and you use the money for anything other than the things approved for these funds, you will need to claim the scholarships and fellowship grants as personal income. It is important to find the right tax preparer to help you claim this financial aid money properly, especially if you used part of it to help with educational costs and some of it for personal uses. Make sure to contact the professionals at Coastal Business Services to ensure you are filing your taxes correctly, especially when it comes to your financial aid.

When you are ready to file your tax return this year and need help determining whether to count your financial aid as personal income or not, make sure to contact Dennis O’Brien at Coastal Business Services, LLC. in Farmingdale, NJ. Our professionals can take care of this and many other common tax questions so you can get your tax return done right.