Seeking, borrowing and repaying student loans seem to involve reams of paperwork with piles of forms and files, almost as if you were starting a new job.
If you’re desperate to downsize this stack of paper, here’s how to do it without trashing an important document that you might miss later.
Conventional wisdom says to dispose of student loan paperwork once you pay off your debt. Another common-sense approach prescribes storing everything important as long as possible — then, if a lender or collection agency challenges you years after completing your repayment, you won’t be left without proof.
That higher standard deduction makes it difficult to put together enough charitable deductions to make it worth itemizing. But if you do make large contributions, the threshold for deductions has jumped from 50 percent of adjusted gross income to 60 percent. While it’s too late to make charitable donations for 2018, Kibler suggests tracking down receipts for donations made throughout the year, especially of cash or goods. Giving to eligible nonprofits, religious organizations, and government organizations (such as a school or public library) are deductible. “If you dropped off a bag of clothing at a local charity or gave them $5 at the cash register of your grocery store, make sure to track these contributions so you get the highest tax benefit possible,” Kibler says.
The passage of the Tax Cuts and Jobs Act in 2017 almost doubled the standard deduction in 2018, pushing it from $9,350 for those filing as head of household to $18,000. But it also eliminated a bunch of helpful credits and deductions, including the personal exemption, which was $4,050 in 2017.
AMERICAN OPPORTUNITY TAX CREDIT
While tuition and fees deductions have dried up, the American Opportunity Tax Credit remains an option for eligible students — not grad students or long-term undergrads; it’s available only during the first four years of college — with at least half-time status at an accredited school. It covers all of the first $2,000 in expenses and 25 percent of the next $2,000 (for a total $2,500). Schools will send students a 1098-T showing the amount paid last year in tuition and fees, but even expenses including books, supplies, and equipment such as computers can be offset. If the 1098-T does not max out the allowed credit, hold onto those receipts for supplies.
LIFETIME LEARNING CREDIT
This is the tax credit for the older student. Anyone taking classes at an eligible educational institution to acquire or improve job skills is eligible, even students taking just one class well after four years of undergraduate education. There are limits: Students are credited for only 20 percent of $10,000 in expenses ($2,000 is the maximum), though it can be applied to tuition, fees, books, supplies, and equipment. Individuals with an adjustable gross income between $56,000 and $66,000 (or between $112,000 but less than $132,000 for married filing jointly), will get a reduced amount. If it’s over those thresholds, you can’t claim the credit at all.
MORTGAGE INTEREST DEDUCTION
If you bought a home and had the mortgage in place before Dec. 15, 2017, you are still eligible to deduct interest on up to $1 million in mortgage debt. If you happened to sign on that date or later, though, your threshold drops to $750,000.
DEPENDENT CARE CREDIT
If a child does not qualify for the Child Tax Credit because they are over 17, they may still be eligible for a $500 credit under new tax laws. The credit also applies for dependents who are elderly or disabled.
CHILD TAX CREDIT
Those who took advantage of the child tax credit in 2017 could claim a $1,000 credit on their income tax return for each child under 17 who qualified. In 2018, that doubles to $2,000 per qualifying child. The credit was also nonrefundable in previous years, but can now be refunded to 15 percent of earned income over $2,500, or up to $1,400. To qualify, children have to be 16 years or younger on the last day of 2018, be related to you, claimed as a dependent, be a documented U.S. citizen or resident, have lived with you for half of the tax year (though absences related to school, vacation, military service, and medical care are exempt) and must not provide more than half of his or her own support. The credit phases out for married taxpayers filing jointly with an income of $400,000 (or $200,000 for all other taxpayers).
EARNED INCOME TAX CREDIT
The Earned Income Tax Credit is for low- and moderate-income taxpayers with “earned income” such as wages, salaries, or self-employment pay (but not Social Security, unemployment, or investment income). The limits are strict, ranging from $15,270 for a single person with no children to $54,884 for a married couple with three children or more. The credit’s value is worth $519 to $6,431 depending on filing status and number of dependents, but requires recipients to have less than $3,500 in investment income for the year.
Whether it’s through an employer or private plan, a traditional Individual Retirement Arrangement funded with pretax money — unlike a post-tax Roth IRA — is deductible up to a certain limit. Even if an account is opened and funded in 2019, any contributions made before the tax-filing deadline can be credited to the previous year. For 2018, the maximum contribution is $5,500 (or $6,500 for those 50 or older). There are also deduction limitations depending on the taxpayer’s income and access to an employer-sponsored retirement account.
STUDENT LOAN INTEREST DEDUCTION
Students can still deduct up to $2,500 for interest paid on student loans — but get less if median adjusted gross income exceeds $65,000 ($135,000 for joint returns) and nothing if it’s $80,000 or more ($165,000 or more for joint returns).
CREDIT FOR THE ELDERLY OR THE DISABLED
Taxpayers 65 or older — or younger but retired or on permanent and total disability — may be eligible for a credit. Taxable income must be below $17,500 (or $20,000 if married and filing jointly) and nontaxable Social Security, pension, or disability benefits must be below $5,000. If both partners qualify and file jointly, the income limits are $25,000 for taxable income and $7,500 for nontaxable benefits. The credit itself ranges between $3,750 and $7,000.
It isn’t much, but the Savers Credit gives back to low- and moderate-income people who contribute to a qualified retirement account. Taxpayers can get a credit for 10 percent, 20 percent, or 50 percent of the first $2,000 contributed, depending on income and family size. To get the minimum 10 percent, the maximum allowed income is $31,500 for single filers, $47,250 for the head of a household, and $63,000 for joint filers. Also, beginning this year, beginning in 2018, if you’re the designated beneficiary you may be eligible for a credit for contributions to your Achieving a Better Life Experience account for persons with disabilities.
A longtime friend to small-business owners and freelancers, the Simplified Employee Pension IRA offers higher contribution limits than a traditional IRA. As their own employer, business owners and freelancers can contribute up to 25 percent of their annual income or $55,000, whichever is lower. As with a traditional IRA, contributions made before the tax-filing deadline (without an extension) can be applied to the previous year.
MORTGAGE INTEREST CREDIT
Taxpayers who get a Qualified Mortgage Credit Certificate worth up to $7,500 from a local or state government may be able to claim the Mortgage Interest Credit. The home must be the taxpayer’s primary residence, and interest payments can’t go to a taxpayer’s relative. The credit is worth up to $2,000, and unused portions may be carried forward to the following year.
SOLO 401(K) CONTRIBUTIONS
Unfortunately, taxpayers can’t just set one of these up before the tax deadline and save some cash. The one-participant 401(k), or solo or self-employed 401(k), requires you to file for a federal Employer Identification Number and set up the account by Dec. 31. But once a solo 401(k) is established, taxpayers can make contributions right up to the tax-filing date in April (or mid-October, with an extension). Total contributions can’t exceed $55,000, but that’s still nearly four times the maximum employee contribution to a standard 401(k) of $18,500.
If you bought new office furniture, computer servers, cranes, end loaders, cattle, trucks, or taxis for a business last year, you may be able to write off more from them than you thought. Even if you built oil derricks, warehouses, office space, or utility plants after Sept. 26, 2017, the bonus depreciation you could claim on the first year of owning those assets increased from 50 percent just a day before to 100 percent “expensing” from Sept. 27 onward. Recent tax changes also extended bonus depreciation from items bought or built new to both new and used assets. That “expensing” applies to productions (qualified film, television, and/or staged performances) and even certain fruit or nuts. The law also increased the maximum deduction from $500,000 to $1 million, with the phase-out threshold increasing from $2 million to $2.5 million.
Self-employed people can deduct 54.5 cents a mile driven for business purposes the previous year; the rate goes up to 58 cents in 2019. That said, detailed mileage logs are required. Writing down the miles driven (odometer readings at the beginning and end of the trip help), the date, the business purpose of the trip, and the destination should be adequate. Taxpayers can also take a 18-cent-per-mile deduction for eligible miles driven for medical purposes in 2018, up from 17 cents in 2017 (and it’s 20 cents in 2019). The standard mileage rate for charitable activities is unchanged at 14 cents. Moving expenses, however, no longer qualify for a deduction.
HOME OFFICE DEDUCTION
This one is tricky, as simply working on the couch or at a kitchen table doesn’t cut it. A home office has to be a dedicated space for working and meeting clients and customers. Furthermore, office-related utilities including telephone, internet, and even heat and electricity have to be parsed out separately. You can try to determine which portion of a home’s expenses, taxes, insurance, and depreciation is dedicated to a home office; a simplified version multiplies the square feet of the room by $5 (if the total size is 300 square feet or smaller). That said, you can only get this deduction if you’re self-employed: It disappeared for employees in 2018.
You may be able to take a tax credit of up to $13,810 for qualified expenses paid to adopt a child in 2018. Those expenses include adoption fees, court costs, attorney fees, travel expenses (including amounts spent for meals and lodging), and readoption expenses for a foreign child. Those credits apply to adoptions of anyone under 18 years old or physically or mentally incapable of taking care of themselves. If your modified adjusted gross income is more than $207,140, the credit is reduced; those with MAGI of $247,140 or more can’t take the credit.
FOREIGN TAX CREDIT
If you paid or accrued income tax in a foreign country or U.S. possession in 2018, you can use it as a credit against U.S. income tax. If you already exclude foreign earned income, foreign housing costs, foreign possessions, or income from Puerto Rico exempt from U.S. tax, you aren’t eligible. Also, your foreign tax credit can’t be more than your U.S. tax liability multiplied against a fraction made up of taxable income from outside the United States and total taxable sources.
HOME SALE EXCLUSION
Most people who sell a home know that, if they’ve sold at a gain, they may exclude up to $250,000 of it if single or $500,000 if married filing jointly. Granted, you actually had to live in that home for two of the past five years (military, foreign service, and intelligence personnel are exempt). What most homeowners don’t realize is that the gain isn’t only on the sale price of the home, but on improvements made, real estate agent sales commissions, closing costs, recording fees, and survey fees. Kibler suggests keeping clear records of all of it in case of an audit and to keep a big chunk of the gain tax-free.
FOREIGN EARNED INCOME EXCLUSION
If you live in a foreign country for at least 330 full days out of the year, you can have up to $104,100 of your salaries, wages, professional fees, and other amounts you get as an employee excluded from federally taxable income. You may also exclude amounts your employer pays for rent, furniture rental, parking, or other items.
HSA CONTRIBUTION LIMITS
The IRS will allow taxpayers to make tax-free contributions and withdrawals from Health Savings Accounts as long as they go toward qualifying medical expenses. High-deductible health plans — with premiums ranging between $1,350 and $6,650 for singles and $2,700 and $13,300 for families — allow taxpayers to contribute up to $3,450 for single filers or $6,900 for families to HSAs without any tax implications.
NONBUSINESS ENERGY TAX CREDIT
The Nonbusiness Energy Property Credit covers materials that meet the efficiency standards of the Department of Energy. This includes home insulation, exterior doors, exterior windows and skylights, some roofing materials, electric heat pumps, various water heaters, central air conditioning, biomass stoves, furnaces, boilers, and advanced circulation fans. You can claim 10 percent of the minor improvements or 100 percent of the big ones, but you’ll get only a maximum $500 credit for all years of improvements combined. It also sets credit limits for windows ($200), boilers ($150), fans ($50), and bigger jobs ($300).
RESIDENTIAL RENEWABLE ENERGY TAX CREDIT
If you’re thinking about going solar, installing a small windmill, looking into geothermal heat, or experimenting with fuel cells, there’s tax incentive to do so. You can get a 30 percent rebate on any of the above, but act quickly. If you don’t install it by the end of 2019, the rebate drops every year until 2022.
CASUALTY, DISASTER AND THEFT LOSSES
In previous years, a taxpayer could get a deduction for any mishap that occurred in their home. But starting in 2018, the damage must have occurred during a federally declared disaster for a taxpayer to get that same deduction. This deduction may return in full in 2025, but for now it’s limited to disaster areas.
Realistically, though, the guidelines for how long to store something depend on which document you’re talking about. Here are six types of student loan files and how best to decide on when to store or shred each.
1. Student loan master promissory note (MPN)
Whether you borrowed from the Department of Education or a private lender, you agreed to a legally-binding contract outlining how and when you would repay your debt. That’s the MPN.
Consider it like the lease for your apartment or home rental. When you move into a new place, you keep your lease handy in case you’re suddenly curious whether you’re allowed to repaint the walls or rent out a room on Airbnb.
Similarly, it’s wise to keep the MPN in your possession. If you’re about to graduate, for example, you might refer back to the MPN to confirm the length of your grace period.
On the other hand, if your refinancing or consolidation lender pays off the original debt on your behalf, you can ditch the old document and keep the contract associated with your new loan.
Bottom line: Keep at least until your loan has been repaid.
2. Monthly student loan bills
You might still be receiving monthly bills in the mail for your student loan payments. These can be worthwhile if you prefer to confirm the accuracy of your monthly dues on a hard copy.
There’s no harm in keeping these slips of paper filed away. It’s possible you could need them if you decide to meet with a student loan counselor, for example.
But there’s no real need to store them at all. You could go paperless: Just be sure to review the statements, which would arrive via attachments to your email inbox, as well as keeping an eye on your online account summary to ensure your payments are being applied appropriately.
Bottom line: Keep at least until your payment for the bill in question has been applied to your account.
3. Correspondence with your lender, loan servicer or collections agency
If you’ve had problems with whomever holds your debt — perhaps to the point of losing trust in them — you might find yourself exchanging letters. Often, creating a paper trail is better than communicating over the phone with unhelpful customer service reps. The paper copies could come in handy if you later battle your loan servicer in court, for example.
However, it’s possible your correspondence with your lender is more run of the mill. Maybe you’re receiving confirmation of your annual recertification for income-driven repayment or are being informed of an administrative change (perhaps your loan has been sold to another servicer).
Whether it seems to be a serious matter or not, personal letters are worth keeping. Say you’re working toward Public Service Loan Forgiveness, for example. You’ll want to be able to locate any mailing that could prove you’ve fulfilled the eligibility requirements when the time comes to receive forgiveness.
Bottom line: Keep at least until your loan has been repaid.
State income tax: 1% to 13.3%
State income tax: 5.8% to 10.15%
State income tax: 5% to 9.9%
State income tax: 5.35% to 9.85%
State income tax: 0.36% to 8.98%
State income tax: 1.4% to 8.97%
State income tax: 3.55% to 8.95%
State income tax: 4% to 8.95%
State income tax: 4% to 8.82%
State income tax: 1.4% to 8.25%
State income tax: 4% to 7.65%
State income tax: 1.6% to 7.4%
State income tax: 0% to 7%
State income tax: 3% to 6.99%
State income tax: 0.9% to 6.9%
State income tax: 1% to 6.9%
State income tax: 2.46% to 6.84%
State income tax: 2.2% to 6.6%
State income tax: 3% to 6.5%
State income tax: 1% to 6%
State income tax: 2% to 6%
State income tax: 2% to 6%
State income tax: 1.5% to 6%
State income tax: 3.75% to 5.99%
State income tax: 2% to 5.75%
State income tax: 5.75%
State income tax: 2% to 5.75%
State income tax: 0.5% to 5.25%
State income tax: 5.1%
State income tax: 2% to 5%
State income tax: 3% to 5%
State income tax: 5%
State income tax: 0.495% to 4.997%
State income tax: 1.7% to 4.9%
State income tax: 4.63%
State income tax: 2.7% to 4.6%
State income tax: 2.59% to 4.54%
State income tax: 4.25%
State income tax: 3.75%
State income tax: 3.3%
State income tax: 3.07%
State income tax: 1.1% to 2.9%
4. Student loan receipt
You can typically request and receive a loan receipt from your loan servicer or lender. You could use it to correct errors on your credit report or to prove your debt-free status if you’re ever questioned.
Note that is different from a student loan payoff letter (or payoff balance statement). The letter shows how much you need to make your final payment, not that you’ve already made it. Think of it as a pre-receipt. You might need it for your student loan refinancing application, but it’s not worth keeping as long as the actual receipt.
Bottom line: Keep it indefinitely — and see below for smart storage.
5. Tax documents
If you’ve been in repayment, you know how student loans and taxes intersect. You can claim the student loan interest deduction from your federal income taxes, for example. You might also find yourself facing a big tax bill if you receive federal loan forgiveness or cancellation.
The tax forms concerning these student loans scenarios include:
Form 1098-E: Also known as the Student Loan Interest Statement, this lender-sent form tallies your interest paid to help you claim your deduction. Form 1099-C: The Cancellation of Debt form confirms any loan amount forgiven or canceled, which you might need to report as income on your Form 1040.
As for how long to hold on to these and other tax documents, look to the IRS’ guidelines: The federal agency reserves the right to audit you within three years of the tax year in question. It could also pursue unreported income (perhaps in the case of loan forgiveness or cancellation) for up to six years.
Bottom line: Keep for up to seven years.
6. Paperwork relating to student loan management
You might also start collecting paperwork relating to whatever ails — or fixes — your loan repayment. Any of the following loan-management strategies are bound to get the printer in a huff:
Each measure could include applications and approval or denial files, as well as additional monitoring.
Say you’ve defaulted on your federal loans, for instance, and are facing collections. To avoid or reduce wage garnishment, you could file a request for a hearing alongside a financial disclosure form that would detail the dire straits of your financial situation.
In serious situations where you might need a student loan lawyer, consult with them on what court papers and other documents are worth keeping.
Bottom line: Keep at least until you’ve resolved the issue.
Keep your student loan records secure
If you’re aiming to declutter, you might be disappointed to learn that it’s wise to keep most of your student loan records for relatively long periods.
Here’s a solution: Ditch that fireproof safe or lock-and-key filing cabinet and replace it with digital storage.
You might have plenty of unused space from your favorite online provider, whether it’s Google Drive, Dropbox or something else. Ensure it’s password-protected, and monitor the file sharing permissions to confirm you’re the only person who can access them.
Backing up your most important student loan docs is also a good idea. You never know when you might need your files down the road.
The post How Long Should You Keep Your Student Loan Records and Paperwork? appeared first on Student Loan Hero.
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