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Accounting Tips

An Easy Guide to College Tax Deductions

Sending a child off to college is a joyous occasion for parents. Your little one is taking another major step towards adulthood, embarking on a journey to find where they want to fit into the world at large. But for many parents, the day a child goes off to school can also be full of stress.

Why? Because college is expensive. And if you’re helping fund your child’s college experience, you have to be incredibly smart with your money. Between tuition, books, room and board, and much more, college is full of expenses. That’s why it’s important for parents to have a firm grasp on which of those expenses qualify for college tax deductions.

If you’re covering aspects of your child’s college education, you may be able to deduct certain qualified expenses paid during the year–but you can’t claim this deduction if your filing status is “married filing separately” or if another person can claim an exemption for you as a dependent on his or her tax return.

So, let’s break it down.

Tuition and Fees Deduction: The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000, according to the IRS. You can qualify for the tax break if you paid for the cost of qualified education expenses for a college student, including yourself, your dependent or your spouse.

Qualified education expenses include tuition, fees and other costs that students must pay in order to attend a school. Eligible expenses also include any student activity fees that students must pay to enroll. For example, if an activity fee is charged for students to be allowed to participate in on-campus organizations, that qualifies as an expense under the deduction.

If you and your spouse are filing separate taxes, or if your modified adjusted gross income is above $80,000, you don’t qualify for the deduction.

American Opportunity Tax Credit: The AOTC allows parents (and students who aren’t considered dependents) to reduce their tax bill by up to $2,500 for as many as four years. Independent students and parents can qualify for this tax credit if you have paid for qualified education expenses used for undergraduate classes.

According to the IRS, AOTC qualified expenses include the cost of books, supplies and equipment a student needs for a course of study if they are not paid to the school. For example, if you buy a book required for a class from an off-campus bookstore, that counts as a qualified expense.

The following expenses do not qualify:

  • Room and board
  • Insurance
  • Medical expenses (including student health fees)
  • Transportation
  • Associated personal, living or family expenses

Lifetime Learning Credit: The Lifetime Learning Credit (LLC) allows parents and students to claim the credit if you’re paying for an undergraduate education, graduate school or a technical school. To receive the full $2,000 LLC, your modified adjusted gross income cannot be higher than $55,000 if you’re single, or $111,000 if you’re filing jointly with your spouse.

Student Loan Interest Deduction: Taxpayers working to pay off a qualified student loan are able to deduct up to $2,500 of student loan interest. In order to figure out how much you can deduct, refer to form 1098-E.

Higher education tax deductions are a complicated beast and largely depend on your individual situation. If you have questions about how you could be benefiting from tax deductions for college expenses, it’s best to consult with a financial professional. Contact us at Wendroff & Associates at 703-553-1099.