College is expensive, But many valuable Concession May help reduce pain. If you are paying college tuition, you can cut your tax bill by up to $ 2,500, and tax credits to help you cover the costs of continuing education classes to improve your job skills. Can also be found. The interest you pay on student loans can be tax-deductible, and you can use tax-saving savings to pay for a computer or private school, in addition to college costs. Recently extended benefits can help families with new education needs due to the coronovirus epidemic, and some strategies can help you get the most out of these tax breaks: Increase your savings.
American opportunity credit for college costs
American Opportunity Credit If you are paying for the first four years of higher education for yourself, your spouse or your dependents can deduct your tax liability by $ 2500, claiming your tax return. To qualify for this credit, the student must be enrolled for at least half-time and must pursue a degree or other recognized academic credential at a college, university, vocational school, or other eligible postgraduate education institution.
To claim full credit, your revised adjusted gross income, or MAGI, must be $ 80,000 or less, if single or filing as head of household, or for $ 160,000 or less. Married couples filing jointly. If your MAGI is less than $ 90,000 or if it is $ 180,000 singly or domestically, then you can claim partial credit if you marry jointly. Credits are calculated as 100% of the first $ 2,000 of qualified expenses, plus 25% of the next $ 2,000 – making the maximum credit $ 2,500 per student.
CPA and CPA Rubin in St. Louis say qualified expenses include tuition, books, supplies and equipment (which do not need to be purchased from the institution) and student activity fees required for enrollment at the university. Member of American Institute of CPAS Financial Literacy Commission.
Lifetime Learning Credit for Graze School and Continuing Education
If you are going to graduate school or taking any continuing education classes – even if you are not working towards a degree – you may be eligible for it Lifetime learning credit. This credit ranges from $ 20 to $ 10,000 in eligible expenses, with a maximum tax of $ 2,000 per tax return.
“Having multiple individuals in college doesn’t give you extra credit,” says CPA, CPA’s consumer financial education advocate and a professor at Austin Community College, Turkey Miller-Nobles. Eligible expenses include tuition and fees that are required of you, your spouse, or the dependent you claim on your tax return.
To qualify for full credit in 2020, your MAGI must be less than $ 59,000 if single or head of household or $ 118,000 for joint filers. If your Maggie is married as a single or head for joint filing or under $ 138,000, you can claim partial credit. There is no limit to the number of years you can claim a Lifetime Learning Credit.
You can take lifetime learning credit for graduate school or graduate expenses, and you do not need to enroll at least half the time. You can also get credit for continuing education, certificate programs or acquisition of individual classes. Improve job skills. This credit is available for an unlimited number of tax years.
“You don’t have to work towards a degree,” says Rubin. The key is that the class must be offered by an educational institution, including any college, university, vocational school, or other post-secondary educational institution, eligible to participate in the federal student aid program run by the US Department of Education Huh.
This credit can be valuable to those who lost their jobs or were on leave Took classes in the last year and to improve his job prospects. “Courses to acquire new skills may be particularly relevant right now,” says Melody Thornton, a CPA in San Diego, California.
You will usually obtain a Form 1098-T from an eligible institution reporting the relevant expenses. To claim credit, complete Form 8863.
Deduction for student loan interest
If you are refunding the student loan, you can deduct up to $ 2,500 in student loan interest. “The interest deduction goes to a person legally obligated to pay interest,” says Tim Todd, CPA and member of the American Institute of CPA’s Financial Literacy Commission.
“If a parent takes out a loan for their child and the parent pays interest, the parent gets a deduction. However, if a student takes a loan and the parent pays the interest, It is assumed that the parent has transferred the money to the student who pays. ”However, the student may not have a holiday if claimed by the parent as a dependent.
To qualify for the deduction in 2020, your MAGI must be less than $ 85,000, if single or head of household, or $ 170,000, if married jointly. If your MAGI is over $ 70,000, the deduction begins when the single or head of household, or married jointly, falls below $ 140,000. You don’t have to Calculation To claim a student loan interest deduction.
Maximizing 529 tax breaks for education at all ages
You can withdraw money from a tax 529 savings plan For college tuition, fees and equipment such as computers or printers. If you do not live on campus, you can still be tax-free for room and board, if enrolled, for at least half the time. Qualified expenses for off-campus housing are typically limited to room and board costs that the college reports for purposes of financial aid; Look for the number on the financial aid page or ask the support office.
“For example, if a school-reported room and board costs $ 15,000, but it costs $ 30,000 for a student living on campus, only $ 15,000 is a valid 529 expense,” Thornton says. You can also withdraw funds tax-free for computers, whether you go to school on campus or virtually, which has become particularly important in 2020 and 2021. The cost of a computer program used by the student for school is also a qualified expense. “As long as the student is using it for 529-related coursework, you can use the 529 for those expenses,” says Mary Morris, CEO of Virginia 529.
There is no age limit to use the money, and you are not required to work towards the degree. “One of the important things we see are adults going back to school – maybe they have lost their jobs and are taking classes or a certificate program that would lead them on a new career path,” says Morris. is.”
As long as you are taking classes from a qualified educational institution, you can get tax-exempt from 529 for those expenses. You will get the biggest tax benefit if you can increase the money in a tax-paid account for years. But even if you do not already have 529, it may be worthwhile to open an account and take any kind of tax break for contribution, even if you plan to use the funds soon for education expenses. . For example, Virginia 529 account holders can deduct up to $ 4,000 in contributions from their taxable income in Virginia each year.
Thirty-five states and the District of Columbia provide tax benefits for 529 contributions, according to the AKF Consulting Group, a municipal advisor to state administrators of the 529 plans. Of those states, 27 offer a deduction or loan to any taxpayer who contributes to the 529 plan; Seven states and the District of Columbia only give an exemption to the account owner. According to the AKF Consulting Group, if you contribute to any state plan, you usually have to contribute 529 of your own state to get tax breaks for Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, and Pennsylvania. Will happen.
In addition, you can now withdraw up to $ 10,000 per year per beneficiary tax-free to pay tuition for kindergarten from 529 through 12th grade, a provision that was added in 2018. Morris says it has recently been popular with families who gave to their children. To attend individual classes in private schools while many public schools were remote or hybrid due to COVID. “It can help with an unexpected cost during a time when some families may have lower incomes,” she says.
If your child does not use the money for educational expenses, you can give the beneficiary to another eligible person in the family. If you take out withdrawals that are not for qualified education expenses, the earnings are taxable and subject to a 10% penalty, although the penalty is waived in some circumstances.
“If a child receives a scholarship, the scholarship amount can be disbursed without being subject to a 10% penalty,” Miller-Nobles says. “The taxpayer must, however, pay tax on the earnings of this distribution.” Even if your child qualifies for a scholarship, you may have other eligible expenses that qualify for tax-free withdrawals, such as room and board, fees, books, or a computer. .
Coordinate tax credit for education with tax free 529 withdrawal
You can qualify for the American Opportunity Credit or the Lifetime Learning Credit and make a tax-free 529 withdrawal in a single year, but you need to be careful. “You can’t use the 529 distribution for the same expense,” Todd says. “In short, you can’t ‘double dip’.”
For example, if you claim the full American Opportunity Credit, $ 4,000 in tuition and the fee you claim is not considered a qualified education expense for your 529, and part of the distribution may be taxable. is.
If you claim the full Lifetime Learning Credit, you may not make a 529 withdrawal of tax-free for the first $ 10,000 in tuition expenses you claimed for the credit, but you can get tax-free from 529 for additional expenses. can do. “If you withdraw money from the 529 plan and are probably eligible to claim credit, be sure to keep receipts for all costs so that they maximize profits between 529 and credit,” says Thornton.