While going back to school is an investment in your future or the future of your children, it isn't always an easy option when it comes to your finances. The good news is that there are some tax breaks that students attending college or university can claim.
These tax breaks will help reduce a bit of the bite of trying to get an education and also limit their need to pay additional taxes. Parents will be able to claim the tax credits for each of their children that are enrolled and attending. These credits and deductions include:
- American Opportunity Credit – This is a tax credit that is available for undergraduates for up to four years of college. Each year, students can claim this credit of up to $2,500. To make this even better, up to $1,000 of the credit is refundable, allowing some students to potentially have a refund even if they do not currently owe anything in taxes. To receive the maximum amount, you have to make under $80,000 for single filers or $160,000 if filing jointly.
- Limited Lifetime Credit – This can be claimed for an unlimited number of years and can apply to all types of degree programs, including graduate and undergraduate. It can also be applied to vocational or professional courses that qualify. This is not refundable, but up to $2,000 can be used to offset any taxes you may owe for that year.
- Tuition and Fees – These can be claimed as a deduction only if the student doesn't meet the criteria for the two credits listed above. This deduction can be up to $4,000 as an adjustment to income. For those that are filing as singles, the $80,000 income limit applies as does the $160,000 if married filing jointly. This deduction is not available if you are married filing separately, but parents can use the deduction if they pay the tuition and fees.
- Loan Interest Deduction – This is for student loans only and is applied as an adjustment to income of up to $2,500.
It is important to talk to your accountant to find out which option is best for your tax situation.