According to an article I read in Accounting Today, with crushing student loan debt and the skyrocketing costs of education at all levels making headlines and policy debates, the approaching start of the next school year led the folks at TaxAudit.com to put together this list of education-related tax tips. Some tips will save you money – and others will save you trouble with the IRS.
1. School Uniforms
School uniforms are not deductible, even if they are required. Look on the bright side, it saves you a lot of money from buying regular clothes and laundry costs. You won’t even miss the deduction.
2. Private School Tuition
The cost of private or parochial school tuition isn’t deductible either. It cost us an arm and a leg to send our kids to private institutions. For all the money we pay in property taxes, at least we should get a credit on our public school taxes.
3. Some Private School Costs, However …
If you can separate the educational costs from the child care component of private school tuition, those costs may be deductible for children up to the age of 13.
4. Before- and After-School Care
For a child up to the age of 13, the cost of before- or after-school care may be deducted if it is a qualifying expense. Cable bills, the internet, and Sponge Bob Square Pants cartoons do not qualify.
5. Tax Deductions for School Fundraisers are Limited
There are limits here; among other things, you are required to reduce your deduction by the market value of any goods received in return for your charitable donation.
6. Moving Expenses for College
These are not deductible. Going away to college is not moving for a job, it to get an education, so the IRS does not allow the moving expenses deduction. Although we hope they find a job after they graduate instead of coming back home. Plus, we turned their room into a place for Scrapbooking or a home office for our side business.
7. Earnings in 529 Plans
The earnings in 529 plans are NOT taxable for federal purposes. The money grows tax-free and withdrawals are not taxable as long as the money is used for eligible college expenses like tuition, books, lab fees, but not room and board.
8. Tax-Deferred Accounts
You can use tax-deferred accounts (i.e., an Educational Savings Account) to pay for qualified educational expenses including books and computers, for elementary, high school and college expenses.
9. The American Opportunity Credit
The AOC can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education at a qualified education institution. Up to 40% of the credit is refundable, which means that the taxpayer may be able to receive up to $1,000, even if they have no tax liability. Eligible expenses include tuition at an eligible institution, books and required supplies, but not room and board, medical expenses, insurance, etc. Income limits apply.
10. Lifetime Learning Credit
This credit can be worth up to $2,000 for qualified education expenses paid for a student enrolled in an eligible educational institution. It is a nonrefundable credit of 20% of a maximum $10,000 in qualified education expenses. You don’t even have to earn a degree. There is currently no limit on the number of years a taxpayer can claim the Lifetime Learning Credit for an eligible student. Income limits do apply, however.
11. Student Loan Interest
There is a student loan interest deduction of up to $2,500 for paying interest on a student loan (also known as an education loan) used for higher education. The amount of the student loan interest deduction is gradually reduced (phased out) if the taxpayer’s modified adjusted gross income is within a certain range.
12. Tuition and Fees Deduction
The tuition and fees deduction applies to qualified education expenses for higher education on an eligible student. The deduction gradually phases out between a certain income range until no deduction is allowed. The deduction is available for one or more qualified courses and there is no limit to the number of years the deduction can be claimed.
