Are your children in college? You may be able to offset some of the costs of their education with tax breaks.
Here’s a “tax primer.”
Education tax credits
include the American Opportunity Tax Credit and the Lifetime Learning Credit. The American Opportunity Tax Credit can reduce your tax bill by up to $2,500 per student. Currently, the credit can be claimed for all four years of study, and up to 40% of the credit can be refundable. The maximum Lifetime Learning Credit is $2,000 regardless of the number of college students in your family. Both credits are subject to limits, depending on your income.
The student loan interest deduction
is an above-the-line deduction of up to $2,500 a year for interest paid on student loans. The deduction will phase out depending on your income.
Education savings accounts
let you set aside up to $2,000 per year per child in a tax-deferred account for elementary, secondary, or higher education expenses at either private or public schools. Phase-outs apply.
Section 529 plans
include tax-favored college savings plans and prepaid tuition accounts. Tax-free withdrawals can be used to pay for tuition, fees, supplies, equipment, and certain room and board expenses.
Be sure to keep records of your tuition, fees, and other expenses so you can take advantage of all education tax breaks to which you’re entitled. For details and assistance, contact our office at Tax Time Services.