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Higher education can be costly and difficult to afford, which is why opportunities to reduce expenses should be grabbed and explored. There are three ways that taxpayers can take advantage of to help with the education expenses; namely tax credits, deductions, and savings plans.
A tax credit lessens the income tax one has to pay. A deduction reduces the amount of income that is subject to tax, subsequently reducing the tax needed to be paid. Savings plans generally accumulate regular deposits and earnings, growing tax-free until the money is withdrawn to enroll the student. While all of these have pros and cons, below are the tax credits taxpayers can use for their dependent or even for themselves.
To be able to claim an education tax credit, the student, who is the taxpayer himself or a dependent, pays qualified education expenses for higher education. He also must be an eligible student enrolled at an accredited or recognized educational institution. The eligible student must also be listed on the filed tax return.
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The American Opportunity Credit provides a maximum annual credit of $2,500 for each eligible student. If the credit amount is greater than the amount of taxes owed, up to $1,000 of refund can be claimed.
The Lifetime Learning Credit meanwhile can provide an amount of up to $2,000 per tax return. Those who enroll in undergraduate, graduate and professional degree courses are eligible to claim this credit.
With education tax credits available, higher education should not have to be as burdensome as it was before. The pursuit of knowledge has definitely become more bearable.
Anthony Laxen is a tax manager and shareholder at Weber & Deegan, Ltd. To learn more about tax management, subscribe to this Twitter feed.
