Getting ready to go off to college for the year usually brings to mind thoughts of packing the right books, clothes and electronics. It’s an exciting time, but unfortunately, there should be one more thing on your mind: The IRS.
You’ll want to be aware in advance of any tax credits and deductions that can help ease the burden of tuition for students or their spouses or parents.
Knowing which deductions and credits you’re eligible for, and which may be most advantageous to you, will help you to make the most informed choices about college expenses and your budget. Some of Deductions that may help you and your family with college include:
If have a modified adjusted gross income of less than $75,000 (or $150,000 if you’re married and filing jointly), the interest paid on a student loan during the year may be tax deductible, reducing the portion of your income that is taxable.
Interest can range anywhere from 3 to 8.25 percent, depending on good of a loan you were approved for. That money can add up if you have $20,000-$40,000 in student debt upon graduation. If you have $50,000 in student loan debt and you’re paying it off at 8.25 percent, you’re paying more than $4,100 in interest alone. That money doesn’t even pay off your debt. It only pays the bank that lent you the money in the first place.
Deducting that cost can be vitally important to your expenses.
If you have a modified adjusted gross income under $80,000 (or under $160,000 for married couples filing a joint return), you may be able to deduct tuition costs and any fees paid. That can help you reduce your taxable income by as much as $4,000!
Tax credits are also available for many students and families, but only one of the credits can be claimed in a given tax year. Of course, you can take those credits on a per-year, per-student basis. This situation can arise if you have more than one student attending college at the same time.
In a year in which you claim one of the credits, however, you will not be allowed to deduct tuition and fees for the same student. You need to determine which scenario will be most advantageous for your situation on a yearly basis.
The Lifetime Learning Credit — a popular tax credit — has been extended through 2012. This credit of up to $2,000 is available to those with a modified adjusted gross income of $80,000 or less for singles or $120,000 for married couples who file joint returns.
The American Opportunity Tax Credit has also been extended through 2012. This credit of up to $2500 is available for tuition, fees and course related equipment, books and supplies. Eligible taxpayers are those whose modified gross adjusted income is less than $80,000 for those filing as single, or $160,000 for married couples filing jointly. With this credit, you may receive as much as $1,000, as the credit is refundable.
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