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Tuition and Fees Deduction. The IRS has provided tax savings to help offset the high cost of getting an education. The tuition and fees deduction is structured to allow certain taxpayers to reduce the amount of income subject to tax by up to $4,000. Because the deduction is taken as an adjustment to income, you can claim this deduction even if you don’t itemize deductions on Schedule A (Form 1040). This can provide you with advantageous tax savings.
| Maximum Credit | You can reduce your income subject to tax by up to $4,000 |
| Who Can Claim the Credit | Three requirements must be met:- You pay qualified education expenses of higher education- You pay the education expenses for an eligible student- The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return
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| Who Cannot Claim the Credit | You cannot claim the credit if any of the following apply:- Your filing status is married filing separately- You are listed as a dependent in the Exemptions section on another person’s tax return- You (or your spouse) were a nonresident alien for any part of 2011 and the nonresident alien did not elected to be treated as a resident alien for tax purposes
- You claim the American Opportunity of Lifetime Learning Credit
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| Limit on Modified Adjusted Gross Income (MAGI) | $160,000 if married filing a joint return; $80,000 if single, head of household or qualifying widow(er) |
| Phase-Out Levels | Filing status is single, head of household or qualifying widow(er), and your MAGI is- not more than $65,000 then your maximum deduction is $4,000- more than $65,000 but not more than $80,000 then your maximum deduction is $2,000- more than $80,000 then your maximum deduction is $0
Filing status is married filing jointly , and your MAGI is - not more than $130,000 then your maximum deduction is $4,000 - more than $130,000 but not more than $160,000 then your maximum deduction is $2,000 - more than $160,000 then your maximum deduction is $0
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| Where is the Deduction Taken | As an adjustment to income on Form 1040 or Form 1040A |
| For Whom Must the Expenses be Paid | A student enrolled in an eligibly educational institution who is either:- You- Your spouse- Your dependent for whom you claim an exemption
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| Qualified Expenses | Tuition and fees required for enrollment. |
| Expenses that Do Not Qualify | - Insurance- Medical expenses (including student health fees)- Room and board- Transportation
- Similar personal, living, or family expenses
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| No Double Benefit Allowed | You cannot claim a deduction based on expenses paid with:- Tax-free educational assistance, such as a scholarship or grant- Tax-free interest on U.S. savings bonds- Tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP)
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| Payments for Academic Periods | Generally, payments are deductible in year paid, but payments made in one year for a course that starts within 3 months of the next year qualify.For instance, tuition paid in 2011 for a course that begins before April 1, 2012, counts towards the 2011 education credit. |
You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
For a complete overview of the American Opportunity Credit, please see StrataTax’s article “Education Credits to Lower Your Taxes – Overview of the American Opportunity Credit.”For a complete overview of the Lifetime Learning Credit, please see StrataTax’s article “Tax Incentives for People Who Pursue Higher Education.”
Your tax preparer can provide you with more information regarding education credits and other tax savings on your income tax return. StrataTax, a San Diego consulting and tax services firm, is available year-round to assist you with income tax preparation and tax planning. Call us at (858) 225-7720 to setup your free initial consultation or visit us at www.StrataTax.com for more information.
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The end of summer brings about beautiful fall weather and of course, back to school time. And with it comes the payment deadlines for tuition and other school expenses. Fortunately, there are some education related tax deductions and tax credits that can help offset college costs.
Tax preparation means more than just data entry. One of the most important parts of tax preparation is identifying credits that people are eligible for. An important education credit is the Lifetime Learning Credit. The Lifetime Learning Credit provides a tax credit of up to $2,000 for any level of college education (even graduate school). Qualifications and limitations are described below.
The IRS offers the American Opportunity Credit to assist people who are pursuing an undergraduate education. The credit is worth up to $2,500 on the first $4,000 of qualifying education expenses.
Coverdell Education Savings Account. A Coverdell Education Savings Account (ESA) is a savings account that is set up to pay the qualified education expenses of a designated beneficiary who is under the age of 18 or is a special needs beneficiary. It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created.
