Go Back to School on Uncle Sam!
Tax Credits Available for Educational Expenses
It’s fall, and that usually means that it’s back to school season.
If you’re not too cool, then school may be on your horizon. If you’re an adult, there are plenty of reasons to start hitting the books whether it’s your first or second time. You can expand your skill-set to get that promotion, or ride out a rough recession that’s leaving you with more free time than you would like.
If you decided to take the plunge this fall, or are thinking about it, here is how the tax code helps:
Scholarships and Fellowships: If you’re lucky enough to obtain either one of these, the funds you receive are tax free. You must be getting a degree, your school must be eligible and your funds can only go toward qualified education expenses.
Lifetime Learning Credit: Use this credit to help pay for undergraduate, graduate or professional degree courses, including those that enhance your job skills. If eligible, you can qualify for up to $2,000 per year.
Tuition and Fees Deduction: Up to $4,000 in tuition and related expenses may be tax-deductible for students and their parents.
Coverdell Education Savings Accounts: These accounts are set up solely for paying education expenses for a designated beneficiary, who must be under 18 years old when it’s set up. You can create as many accounts as you want, but you can only contribute a combined total of $2,000 per year to all of them. The funds are tax-free when distributed.
Qualified Tuition Programs: Also called 529 plans, these are maintained by states and allow you to prepay a student’s educational expenses for an eligible institution. You can’t contribute more than what’s needed, and similar to Coverdell accounts, contributions aren’t tax-deductible. A QTP and a Coverdell account, however, can be set up and contributed to simultaneously.
Student Loan Interest Deduction: Up to $2,500 in student loan interest is tax-deductible if your gross income is less than $75,000.
Work-Related Education Expenses: You may be able to deduct such expenses on Form 1040, Schedule A. To be eligible, the expenses must be for education that enhance or maintain your job skills or be required by your employer or the law for you to keep your job. The education can’t go toward making you qualified for a new line of work.
You may not be educated in the thousands of pages in the tax code, but you’ll want somebody who is if you have back tax debt. A tax attorney knows all of the IRS’ rules and regulations and can be your advocate if the IRS is threatening you with a wage garnishment or bank levy. You could end up with some super-sized savings!