Getting a quality education in the U.S. can be quite costly to finance, and this is why the government is offering tax deductions to parents who have dependents in college. Students who are paying for their own college education can also get these tax write offs. Whoever said learning pays must have also thought of the tax deductions students and parents get. The federal tax code has tens of thousands of pages, making it impossible for any one person to know everything about it. Lack of information can lead to inaccurate filing. In fact, many parents and students who file their own returns fail to claim these write offs because they do not know about them. The following are some tips to help taxpayers get all school-related tax deductions.
1. Join an Eligible Educational Institution
School-related tax deductions are only offered to students who are undertaking their studies in colleges and universities that are accredited by the Department of Education. When signing up for a course, students should ask whether or not the school is an eligible educational institution.
2. The Difference Between Tax Deductions and Credits
A tax deduction is not as useful as a tax credit. The latter is a discount, meaning a certain amount of money is deducted from the tax payable. A deduction reduces the taxable income of an individual before the appropriate tax rate is applied when calculating the amount of tax payable. Taxpayers can claim two tax deductions in a tax season. These are: student loan interest tax deduction (form 1098-E) and the tuition and fees deduction (form 1098-T). They can also claim two tax credits namely, Lifetime Learning Credit and the American Opportunity Credit.
3. Qualifying for School-Related Tax Deductions and Credits
Tax Deductions
Students who have already started paying interest on a qualifying student loan can get up to $2,500 in tax deductions. The cost of tuition and other fees paid to an eligible educational institution can also be deducted from the gross income of the taxpayer. However, this is subject to a maximum of $4,000 annually. This deduction is further reduced to a maximum of $2,000 for students or parents earning up to $80,000 individually or $160,000 jointly. Those who have taxable income exceeding these limits do not qualify for any school-related tax deductions.
Tax Credits
The American Opportunity Credit was recently extended to 2017. Eligible taxpayers can claim tax credits of up to $2,500 annually. However, only those earning a gross income of less than $80,000 or $160,000 filing individually and jointly respectively may claim this tax credit. It is only applicable to the first four post-secondary education years. On the other hand, the Lifetime Learning Credit gives qualifying taxpayers a tax credit of up to $2,000 every tax season. Taxpayers can claim this credit when they spend money on college tuition and other qualifying expenses. The main advantage of this tax credit is that it does not have the same restrictions as other tax benefits. For instance, there is no limit as to the number of years parents and students may claim this tax credit.
4. Fill The Right Forms
School-related tax credits are normally claimed through Form 8863. On the other hand, deductions are claimed through Form 8917. All the tax benefits that are claimed by a student or parent must be indicated on Form 1080 or 1080A. Filling and filing the right forms is important. Taxpayers may find themselves on the wrong side of the law because of a simple error or omission. Therefore, accurate and proper filing of returns is crucial.
Those who want to finance their own education, or that of a dependent, should be aware of all the student discounts they can get. These tax benefits can significantly reduce the amount of taxes payable in a given year.
About the Author:
Today’s guest article comes from Ryan Ayers. He is a writer who creates informative articles in relation to education. In this article, he offers tax tips to students and aims to encourage further study with a Stetson University Online Accounting Masters Degree.
