The cost of getting an education has never been higher. But by taking advantage of some tax benefits that Uncle Sam provides, you can at least put a small dent in some of those costs.
Unfortunately, figuring out which tax benefits apply can be complicated. Let’s take a look at the many provisions that help college students.
American Opportunity Tax Credit
Students can get a credit of up to $2,500 for each of the first four years of a college education. If you earn less than $90,000 as a single person or $180,000 if you file jointly, then you can claim 100% of the first $2,000 and 25% of the next $2,000 you pay on your tuition, fees, and other qualifying expenses.
Up to $1,000 of the credit is refundable, meaning that even if you don’t otherwise owe tax, the IRS will cut you a check for that amount. These provisions are temporarily higher through 2012, after which they’re scheduled to get cut back.
Lifetime Learning Credit
In addition to the American Opportunity Tax Credit, the Lifetime Learning Credit offers 20% back on the first $10,000 of annual educational expenses paid. Different income limits apply, though, with the benefits completely phased out at $62,000 of income for singles and $124,000 for joint filers.
The Lifetime Learning Credit doesn’t have to be used for the first four years of college, however. It’s available for graduate school as well as job training and other classes taken to acquire or improve job skills. Note, however, that you can’t claim both credits for the same student in the same year.
Tuition and Fees Deduction
Students are entitled to a deduction of up to $4,000 for educational expenses. This is a deduction rather than a credit, but it comes with higher income limits than the Lifetime Learning Credit — $80,000 for singles and $160,000 for joint filers.
Depending on your tax bracket and how much you spent on education, the deduction may be a better bet than the credit. Note, though, that you can’t claim both this and one of the two credits above.
Student Loan Interest Deduction
Even if you’re done with school, you may be able to deduct interest you pay on your student loans. If you’re single and earn $75,000 or less ($150,000 for joint filers), then you can deduct up to $2,500 in student loan interest every year.
To qualify, you need to have been enrolled at least half-time when you took the loan. Also, the money must have gone toward tuition and related expenses, which include room and board.
Get Your Fair Share
Each of these provisions has its own additional requirements, so you’ll want to consult with a tax professional or do further research to learn more. However, when it comes to paying for college, every little bit helps, so stake your claim to Uncle Sam’s tax benefits this year.
More on taxes:
- Why Your State Thinks You’re a Tax Cheater
- Get Ready to Pay Thousands of Dollars More in Taxes
- Which Credit Card Rewards Does the IRS Care About?
- At IRS.gov: Tax incentives for higher education