As tax season is right around the corner, you’re probably beginning to get your financial forms in order before the end of the year. And Tax Reform is a topic that you’re probably just beginning to read up on. What does this mean for my refund? Are there any deductions going away that will impact me? Are my student loans deductible? What really changed?
The Tax Cuts and Jobs Act is the biggest piece of tax legislation in about three decades – so yes, there are quite a few changes. But to clear the air and avoid any confusion, we’ve laid out a step-by-step guide to the initiatives that remain in effect, policies that have been added, and changes that have been made. These tips are designed to help keep you informed so you can keep on top of your student loan payments, make them on time, and stay in good financial shape, and still garner some tax deductions that you deserve as we head into the new year!
Student Loan Deductions
Luckily, there are several deductions that were not changed this year, in particular, the student loan deduction. This means that for most people with student loans, the interest portion of the loan is tax deductible. You can deduct up to $2,500 of your student loan interest.
Graduate School Tuition Waivers
Graduate students: don’t fear. With this year’s tax reform, tuition waivers will remain tax-free. While this might not seem like ground-breaking news, it’s actually significant, as that waived tuition has been valued as high as $50,000 per year. If this had been changed, graduate students would have seen their tax bills skyrocket this year.
Federal & Private Student Loan Debt
This year, the new tax law excludes student loan debt forgiveness from taxable income if you are permanently disabled, or in the event of death if there is a cosigner on the loan. With this new reform, federal and private student loan debt discharged because of death or disability will not be taxed from 2018 to 2025.
Taxes & Deductions
Although the dependent exemptions and personal exemption of $4,050 went away, it is important to note that the standard tax deduction overall nearly doubled. For individuals, the standard deduction has increased to $12,000, while for couples, it has increased to $24,000 so if you claimed the standard deduction before you will see an increase in the amount you can deduct possibly giving you more money in your pocket. These key changes are vital to keep in mind as you’re considering how you’re going to pay off your student loans. Whether you’re consulting with a Certified Financial Planner to set a system in place to handle these changes, or consulting with another expert in the field, it’s important to have a broader view of your overall finances when considering how you’re going to pay off your debt.
What You Can Do Now
We hope this step by step guide empowers you to take an in-depth look at both your student debt repayment plan and your overall financial health. We recommend laying out a succinct plan with your significant other, if applicable, or consulting with a CFP to ensure that you’re on track, in order to make sure that going into the new year, you’re on top of your financial goals. And if you have any (any!) tax-related questions, our friends over at TurboTax have your covered on all things Tax Reform. TurboTax will ask simple questions about you and give you the deductions and credits you are eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. A TurboTax Live CPA or Enrolled Agent can also review, sign, and file your tax return.