It is safe to say that almost all new graduating optometrists have some amount of student loan debt. Whether it’s $2,000 or $200,000, it is critical that all optometrists paying interest on loans utilize Form 1098-E.
This form allows optometrists to deduct a portion of student loan interest paid from earned income. This can help lower the amount of income you make that is subject to tax.
If a borrower made interest payments exceeding $600, the loan servicer must report interest payments to the IRS on Form 1098-E.
This holds true for each individual entity servicing a loan on your behalf. For example, if you hold a loan with two different banks and are making payments to each bank throughout the year, then come tax season, each of those banks must provide you with this particular form for tax filing purposes.
Keep in mind, if your interest payments did not reach $600.00 within the year, you may not receive a 1098-E form from your servicer.
Is all that interest paid tax deductible?
Unfortunately no, not all of the interest payments you make are tax deductible. In fact, there are limitations which include:
- Only interest paid on loan expenses relating to tuition or cost of attending the educational institution are tax eligible. In other words, if you take a loan out to travel for residency interviews, then unfortunately, that does not qualify as an eligible expense.
- A limit of $2,500 per year exists no matter how much interest you pay within that year. For example, if you pay $11,000 in interest over the course of the year, only $2,500 of it is deductible.
- You may only claim the deduction if your modified adjusted gross income does not exceed $75,000, which is another unfortunate stipulation for optometrists, as most optometrists will make more than this after graduating.
Do I need to itemize deductions to utilize the 1098-E?
Fortunately, whether you itemize deductions (working as an independent contractor or business owner) or not, you can claim the 1098-E deduction.
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Student loan interest paid over the course of the year can be tax deductible up to $2,500 as long as the individual’s adjusted gross income is less than $75,000. The form used to report this interest is the 1098-E form which should be provided by the lending institution servicing your loan by January 31st of the following year. If you do not meet the $600 minimum interest payment, then your servicing institution may not provide you with this form.
The following are in depth resources that may also help answer any questions you may have regarding this potential tax deduction:
- Turbo Tax
- NGO’s guide to tax deductions as an independent contractor
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