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Tax Credits and Deductions for Education

Jun 24, 2012

The cost of education has gone through the roof over the last decade and finding ways to save a little money is more important than ever. Uncle Sam has several ways to help you save a little money on your tax bill. There are a variety of tax credits and deductions available to help you save some money.

The Lifetime Learning Credit.


This credit has a limit of $2,000 a year and is only applicable to you if you have taxes owed. The income limits are $100,000-$120,000 for married, $50,000-$60,000 if single. This credit is not limited to for years like Opportunity credit. You can use it for graduate work or schooling to improve job skills.

The American Opportunity Credit.


This credit can cut your owed taxes up to $2500 a year per a tax estimator . It can only apply to the first four years of a college education. The American opportunity tax credit includes expenses for course-related books, supplies and equipment that are not necessarily paid to the educational institution.

The following expenses do not qualify:

  • Room and board. 
  • Transportation. 
  • Insurance. 
  • Medical expenses. 
  • Student fees unless required as a condition of enrollment or attendance.Same expenses paid with tax-free educational assistance. 
  • Same expenses used for any other tax deduction, credit or educational benefit. 

Tuition and Fees.


If you can't use these two credits maybe you can take a deduction off your income for tuition and fees. This can give you a deduction up to $4,000. fill out Form 8917 and submit with your 1040. The income limit for this deduction is $160,000 if married, $80,000 if single, but it’s not scaled as the credits are, there are thresholds, and your deduction allowed is $2000 or $4000 maximum. Fill out Form 8917 and submit it with your 1040.

Student Loan Interest.


As with the tuition/fee deduction, interest on student loans can offset your taxable income without needing to itemize. Up to $2500 of interest may be deducted with a MAGI limit of $150,000 married, $75,000 single. Refer to Student Loan Interest Deduction on IRS website.

Remember using these strategy's to reduce your taxes can be confusing. Using one strategy may rule out using another. You can not use them all together. Seek out a good accountant to help you do your taxes for you.

 

Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.com. Want to be heard? Leave a reader comment below.

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