Sending kids off to college can be a daunting thought for parents who are struggling in this economy. Those same parents may be considering going back themselves to become more competitive in the tough job market. Being aware there are a variety of tax breaks available for higher education is the first step in saving money and making the tax code work for the average taxpayer.
“Obtaining higher education can benefit the long-term job prospects for any student,” said StopIRSDebt.com Lead Attorney, Atyria Clark. “We want to remind anyone attending college that tax credits exist which can help offset the cost.”
Some of the tax breaks available include:
• Tuition and Fees Deduction: Up to $4,000 in tuition and related expenses may be tax-deductible for students and their parents.
• Funds from scholarships and fellowships are tax-free if the student is a candidate for a degree at an eligible educational institution and the funds are used to pay for qualified educational expenses such as course-related fees & books.
• Lifetime Learning Credit: Use this credit to help pay for an eligible student who is enrolled in one or more courses at an eligible educational institution to acquire or improve job skills. The Lifetime Learning Credit is based on qualified tuition and related expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
• 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.
Because colleges and universities do not give tax advice, parents and students may want to find a qualified tax professionals to guide them through the various credits and deductions available to make Uncle Sam work for them!
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