Tax Benefits for Higher Education

The costs for attending college are rising each year making it difficult for many people to afford to go. Many people may not realize that there are a variety of tax benefits available to assist students with the expense of obtaining a higher education. These benefits include credits, deductions and savings plans that can help reduce college costs by thousands of dollars.

One of the credits available to college students is the American Opportunity Credit (AOC). For the first four years of post-secondary education, taxpayers can qualify for the $2,500 maximum credit for tuition and other qualified expenses including books, materials, and supplies needed for a course. This credit is available for those in higher income brackets as well.

The Lifetime Learning Credit (LLC) is similar to the AOC with small differences in eligibility. This benefit has no limit on the number of years, and non-degree seeking students are eligible. This may be helpful for graduate students, or those taking a course or two but may not be pursuing a degree. Both the LLC and AOC can not be used together.

Education Deductions

Another benefit besides credits is the use of deductions for educational expenses. Deductions can reduce the amount of your taxable income just like credits. However, if you do not qualify for credits, deductions may be a better option.

One of the biggest tax deductions is for college tuition and fees. There is a cap for the specific dollar amount you can deduct each year. In addition, there are certain restrictions on what can be deducted and who qualifies for this benefit.

The other big deduction applies to those who take out student loans to pay for college expenses. The interest on these loans can be deducted from your taxes, lowering your taxable income.

Savings Plans

For parents or guardians who plan ahead, putting away money in a savings plan can reduce the exorbitant costs that will be required when the times comes for your son or daughter to attend college.

One of the most common savings plan is the 529 plan. The money put into these accounts are tax-free as long as it is used for qualified higher education expenses.

There are also other opportunities for taxpayers to save on higher education. Please refer to the IRS website for specific details on more options as well as each of these credits, deductions, and savings plans. Being aware can help you plan for the high costs of college, making it less daunting when the bills start to come in.