4 Ways College Expenses Can Ease Your Tax Burden
Posted by: Brookside Admin
Paying for college is a large financial burden, but it can be eased by taking advantage of some opportunities on your tax return. Tax credits and write-offs are available if you meet certain criteria. Here are a few of the opportunities you should know about if you're paying college tuition this year, or will in the near future.
- The American Opportunity Tax Credit
This tax credit is worth up to $2500 each year of your college education for up to four years. There are some stipulations, however. First, you must be enrolled in at least enough hours to be considered a half-time student. But, you only need to be enrolled for at least one academic period throughout the year. The tax credit isn't worth a flat $2500 either. Instead, it applies to the entirety of the first $2000 you spend on eligible expenses, which includes tuition, fees and books, but not room and board. The remaining $500 is accumulated over the next $2000 you spend, so in order to qualify for the entire credit, you have to pay a minimum of $4000 for college. Also, your adjusted gross income must be less than $80-thousand if you're single or the head of a household, or less than $160-thousand if you're married filing jointly. You can still claim part of the tax credit to cover college expenses up until your income reaches $90-thousand or $180-thousand, however.
- The Lifetime Learning Credit
While it's more flexible than the American Opportunity credit, the Lifetime Learning credit is only good for a maximum of $2000 per return, which is figured taking 20-percent of the first $10-thousand you spend on eligible expenses. There's no limit on the number of years you can claim this credit, however, and you don't have to be advancing toward a degree to qualify. Your courses must only be offered by an eligible institution and be part of a post-secondary degree program or be related to your career. The gross income limits for the full credit are a bit lower. For singles or heads of household, it's $55-thousand and for married filing jointly it's $110-thousand. The credit disappears completely for those who make more than $65-thousand or $130-thousand.
- 529 Savings Plans
These plans are a great way to save for parents to save for their children's college expenses. Each of the 50 states and the District of Columbia has its own plan that allow all contributions to be completely untaxed provided they're withdrawn only for qualified college expenses, which include tuition, fees and room and board. Most states plans even give a tax deduction for the funds contributed. There's no income limit for qualification, and there's a high limit on the amount that can be contributed each year. There's even provisions for changing the beneficiary in case your child doesn't go to college or doesn't need the money you've contributed. However, if the contributions are withdrawn for any other reason than college, you'll have to pay taxes and additional fees.
- Student Loan Deductions
No, you can't claim a deduction for you student loans, but you may be able to deduct a portion of the interest that compiled in 2015. Up to $2500 is tax deductible if your modified adjusted gross income is less than $65-thousand for singles or heads of household. That number is $130-thousand for married filing jointly. The amount that's deductible declines as your income rises over that threshold until it's completely phased out at $80-thousand and $160-thousand. You can't be claimed as a dependent and still claim this deductible, but you may be able to deduct interest your parents paid on a student loan that you're liable for. You also don't need to itemize in order to claim this deduction.
Credits and deductions like this are available for a variety of reasons, which is why it pays to work with a professional to prepare your tax return. Contact the CPAs at Brown Kinion and Company this year to ensure you get the deductions you deserve and the refund you've earned.