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August 04, 2014

Ease the financial stress of school with these education tax tips.

With students returning to school in just about one month, it is easy to be reminded of the financial stress of schooling. With the ever growing cost of both primary and secondary education, there are several invaluable tax tips that could save you money and stress!

What parts of education are deductible?

Certain costs in private school education- Apart from educational costs of private school tuition, costs for child care in private schools may be deductible for children under 13 years old.
Before and after school supervision- Qualifying expenses for cost of before and after school care may be deducted for children under age 13.

School fundraisers- These charitable donation deductions are limited. In return for your donation, it is mandatory that you reduce your deduction by the market value of any products that you receive through the fundraiser.

Education loan interest- For students or guardians paying interest on an educational loan, there is a student loan interest deduction of up to $2,500, which is reduced or phased out once a taxpayer’s income is over a certain range.

Tuition and fees deduction- This deduction can be claimed for an innumerable amount of years. It applies to qualified education expenses for an eligible (at least half-time undergraduate or graduate) student’s higher education, also subject to income phase-out rules.

Be aware that the following expenses are NOT deductible:

  • Cost of school uniforms, even if they are not optional.
  • Private school tuition
  • College moving costs

Offsetting cost of higher education

Careful consideration of all available funds is crucial when you are financing you or your child's college education. There are a few options to help you comfortably fund higher education, and potentially receive tax credits by doing so.

  1. 529 Plans- Planning ahead and saving money prior to college is very sensible if this is possible for you or your family. As long as the money in 529 plans is used for eligible educational expenses, the earnings and withdrawals are tax free.
  2. Tax-deferred accounts- For qualified educational expenses for primary, secondary or higher education, you can use a tax deferred account, such as an educational savings account.
  3. The American Opportunity Credit (AOC)- Eligible students in the midst of their first four years of college can receive up to $2,500 in tax credits through the AOC. The taxpayer can receive $1,000 even if they have no tax liability because 40% of the credit is refundable. Income limitations and phase-outs apply.
  4. Lifetime Learning Credit- Eligible students can receive $2,000 for education expenses through this credit. Unlike the AOC, it is a nonrefundable credit of 20% off a maximum of $10,000 in education expenses. Income limits apply, but as of now there is no limit on the number of years a taxpayer can rightfully claim this credit.

Education is a necessary foundation for future success, but, considering all other life expenses, it can often times be difficult or seem altogether impossible to fund. With the right knowledge and planning, however, you can benefit greatly from certain tax credits and tax deferred accounts. Keep in mind that these benefits depend on your income, so their amounts could vary. For more information and guidance, contact any member of our Tax Services Group.

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