A college education costs, on average, $24,000 a year and sometimes much more! Still, only about a third of the people paying for a college education take advantage of tax breaks.
There are two kinds of tax breaks you may be eligible for if you are paying for a college or post-high school education. The first is a tax credit, which reduces the amount of taxes you may owe. A tax deduction is a second kind of tax break. A deduction reduces the amount of income you will be taxed on.
Here are some credits and deductions you should be using on your taxes if you are going to college or have children going to college.
• The American Opportunity Tax Credit – This credit may reduce your tax bill up to $2,500 dollars per student for the first four years of higher education. To be eligible for full credit a single payer may earn up to $80,000 a year and married filers up to $160,000. You can earn a partial credit if you are a single payer and earn up to $90,000, or $180,000 if you file jointly. Even if you owe no taxes, you may be refunded up to $1,000.
• The Lifetime Learning Credit – This credit may be used year after year for any post-high school education and is worth up to $2,000. To be eligible a single payer may earn up to $65,000 a year, joint filers up to $130,000.
Note: You cannot claim both credits at a time, but if you have two children in college, you can take one credit for each.
• If you borrow money – You can deduct the interest paid on both federal and private student debt. You can reduce your taxable income by up to $2,500 if you make up to $80,000 as a single filer or up to $160,000 as a married couple.
• On what you pay for education – You can reduce your taxable income by $4,000 if your income is $65,00o or less as a single filer or $130,000 or less for joint filers. You can reduce your taxable income by $2,000 if you make between $65,000 and $80,000 as a single filer. As a joint filer, to qualify for the $2,000 deduction, you must make between $130,000 and $180,000.
Note: You cannot take both a credit and a deduction in one year.
Education beyond high school is expensive. Take advantage of every tax break you can find as often as you can.