Education Expense Tax Tips

Title page to Locke’s Some Thoughts Concerning Education (Photo credit: Wikipedia)

One way to help ease the bite of the cost of a college education is to use all available tax rules to your advantage.  There are several items you can use, including 529 plans, Coverdell ESAs, and various credits for tuition and fee payments.

The IRS recently released their Summertime Tax Tip 2013-19: Back-to-School Tax Tips for Students and Parents, providing a valuable overview of a couple of important credits and deductions.  The actual text of the Tip follows:

Back-to-School Tax Tips for Students and Parents

Going to college can be a stressful time for students and parents. The IRS offers these tips about education tax benefits that can help offset some college costs and maybe relieve some of that stress.

• American Opportunity Tax Credit.  This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of Dec. 2017.
• Lifetime Learning Credit.   With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for these credits. The tool is available at IRS.gov.
• Student loan interest deduction.  Other than home mortgage interest, you generally can’t deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You don’t need to itemize deductions to claim it.

These education benefits are subject to income limitations and may be reduced or eliminated depending on your income.

For more information, visit the Tax Benefits for Education Information Center at IRS.gov. Also, check Publication 970, Tax Benefits for Education. The booklet’s also available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Tax Benefits for Education Information Center
• Am I Eligible to Claim an Education Credit? – Interactive Tax Assistant tool
• Publication 970, Tax Benefits for Education