Going Back to School Can Make The Going Easier at Tax Time
Whether you’re sending your kid to college, kindergarten or anywhere in between, you might be able to claim a few substantial tax deductions.
Perhaps you’ve even decided to go back to school to prepare for a new career or simply for the love of continuous learning. Whatever your circumstances, once you review the items below you may discover that you can keep a little more of your hard earned cash instead of having to give it to Uncle Sam next April. Remember to keep track of your expenses for those deductions that are allowed.
Private School Tuition, School Uniforms and Childcare
Neither private school nor parochial school tuition at the primary level is deductible. School uniforms are also not deductible even if they are required. However, the childcare component costs of private school tuition for children under 13 may qualify for a tax credit.
Tax Deductions for School Fundraisers are Limited
You are required to reduce your deduction by the market value of any goods or services received in return for your charitable donation.
College Moving Expenses Are Not Deductible; College to Job Expenses May Be
If you have a kid in college you probably already know that expenses incurred moving them to college are not deductible. But, if your kid is moving directly from college for that first job, those expenses may be eligible for the moving expenses deduction.
Student Loan Interest is Deductible Above the Line
Student loan interest is generally deductible as an above the line deduction, which means you do not have to itemize in order to claim the deduction. There is a student loan interest deduction of up to $2,500 for paying interest on a student loan used for higher education.
Earnings in 529 Plans Are Not Federally Taxable
The good news is that the money in a 529 plan grows tax-free and withdrawals are not taxable as long as the money is used for eligible college expenses.
Use Tax-Deferred Accounts to Pay for Educational Expenses
You can use tax-deferred accounts (i.e., an Educational Savings Account) to pay for qualified educational expenses including books and computers for elementary, high school and college expenses.
American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education at a qualified education institution. Up to 40% of the credit is refundable, which means that you may be able to receive up to $1,000, even if you have no tax liability. Eligible expenses include tuition at an eligible institution, books and required supplies, but not room and board, medical expenses, insurance, etc. Income limits apply. A new regulation requires you to have the 1098-T from the qualified educational institution to take the AOTC, and the credit has to be based on amount paid and not billed.
Lifetime Learning Credit
Up to a maximum of $2,000 credit for qualified education expenses paid for a student enrolled in an eligible educational institution. The credit is a nonrefundable credit of 20% of a maximum $10,000 in qualified education expenses. There is currently no limit on the number of years you can claim the credit. Income limits apply. Please keep in mind, this credit does not allow for some of the items that are allowed for the AOTC. This credit is generally based on tuition and fees.
Tuition and Fees Deduction
The Tuition and Fees Deduction applies to qualified education expenses for higher education for an eligible student taking undergraduate, graduate or post-graduate courses. The deduction gradually phases out after a certain income range. There is no limit to the number of years the credit can be claimed