International-Student Tax Deductions
- U.S. citizens and lawful permanent residents must report their worldwide income to the IRS. If you entered the United States on a student visa, however, you need not report any income that is not considered U.S.-source income. The general rule is that the source of income depends on where you were physically located when you earned it. If you worked for a Japanese company over the Internet, for example, but were physically located in the United States when you performed the work, the income is considered U.S.-source income. On the other hand, if you worked for a U.S. company that sent you on a business trip to Japan, the money you earned while in Japan is Japan-source income.
- Strictly speaking, the Lifetime Learning Credit is a credit rather than a deduction. A tax credit could save you more in taxes than a tax deduction, however, because it is deducted from your total tax due rather than your taxable income. You may credit 20 percent of out-of-pocket college tuition, books and supplies against your total tax due, up to a total credit of $2,000. You don't need to be a full-time student to claim this credit; you can claim it if you are taking only one course. Both American and international students are eligible for this credit.
- The American Opportunity Credit cannot be used in conjunction with the Lifetime Learning Credit during the same tax year; you must choose one or the other. You may credit all of your first $2,000 in out-of-pocket expenses for college tuition, books and supplies, and half of your third $1,000, for a maximum of $2,500. You must be enrolled at least half time in a degree program and must not have completed your second year of college at the time you incurred these expenses. Both American and international students are eligible for this credit.
- You may deduct up to $4,000 in out-of-pocket expenses for college tuition, books and supplies from your taxable income, even if you are taking only one course. Both American and international students are eligible for this deduction. You don't have to itemize your deductions to take this deduction, but you cannot use it in conjunction with either the Lifetime Learning Credit or the American Opportunity Credit during the same tax year. Calculate your tax liability with all three of these tax breaks if you qualify for them all, and use the one that results in the lowest tax liability.