April 15 looms near and families finishing their tax returns are looking for every deduction available to ease their annual tax responsibility. While many know that saving for education provides tax incentives, ongoing education also provides a way to deduct money from taxes as well. Here are some credits that students and families will want to use to their advantage when tax season rolls around.
Tax Credits for Higher Education Expenses
The IRS offers some tax relief to students at colleges or career training programs by providing two tax credits to help offset the costs of higher education (tuition, fees, books, supplies, equipment).
The American Opportunity Credit offers a deduction of up to $2,500 per student per year for the first four years of school as long as the student works toward a degree or similar credential.
Additionally, students can claim up to $2,000 per student per year with the Lifetime Learning Credit. This is an additional credit that can be used to deduct for college or career school tuition and fees, as well as books, equipment and class supplies.
Even if you normally wouldn’t file a tax return because of your income level, be sure to do so! If you don’t, you’ll miss out on tax credits that would put money in your pocket.
Protected Savings Accounts
Saving for higher education takes a little planning, but two types of accounts allow money to be set aside, tax-free, for the purpose of education.
Qualified Tuition Plans, known more commonly as 529 Plans, have been in the news lately as college educations and access have increased in importance. QTPs are established by a state or school so that a family can either prepay or save up to pay education-related expenses. When a student embarks on their higher education, they can withdraw money from the account for education expenses. The money withdrawn is not taxed.
Another savings account, the Coverdell Education Savings Account, also allows up to $2,000 a year to be put aside for a student’s education expenses (elementary, secondary, or college) without being taxed.