Tax Newsletter

Higher Education Tax Benefits

You may be able to receive tax benefits if you are saving or paying for expenses related to a higher education, either for yourself or for a family member. There are a number of tax benefits that you may be entitled to.

Educational Tax Credits

The American Opportunity Credit (Hope Credit) and the Lifetime Learning Credit apply to tuition and enrollment fee expenses. Only one of these can be applied per qualified student per year. Different rules apply to each separate tax credit. However, neither credit can be used by households with incomes of $62,000 or more or for households of combined incomes of $124,000 or more (joint returns).

Individual Retirement Accounts (IRAs)

The education IRA and traditional IRA may be applied to tuition expenses, as well as expenses related to books, supplies, and room and board. Withdrawals from an education IRA account are tax-free, with limitations.

Student Loan Interest Tax Deductions

Interest paid on student loans may be deductible. This only applies to the first 60 months of loan interest. The loans must also be used for at least half-time in a degree program.

Qualified State Tuition Programs

Under these programs, future tuition expenses are prepaid, and earnings are not taxed until they are withdrawn.

U. S. Savings Bonds

The interest earned is excludable from income. However, this only applies to specific qualified bonds.

Employer’s Educational Assistance Programs

Like savings bonds, employer benefits are excludable from income, with a $5,250 annual limit.

As some higher education benefits will not allow you to claim two educational benefits simultaneously, those taxpayers interested in taking advantage of higher education tax benefits should investigate the specific terms of the relevant benefit programs.

Income from Debt Cancellation
When you obtain bankruptcy relief, you are essentially receiving a financial benefit, because most, if not all, of your debts will be wiped away. The tax consequences of debt relief differ greatly depending upon whether the debt is... Read more.
Reasonable Cause for Failure to File a Tax Return or to Pay a Tax
When a taxpayer fails to file a tax return or to pay a tax that is due, the IRS will impose a penalty. However, a taxpayer will be excused from paying the penalty for failure to file or pay if he or she shows that there was reasonable... Read more.
Business Use of the Home
Certain expenses related to maintaining a home, such as mortgage interest and property taxes, are deductible from gross income for taxpayers able to itemize deductions, i.e., they can reduce the amount of income subject to federal... Read more.
Gift Tax and the Annual Exclusion
A gift tax is a tax on the privilege of making gifts to others while the taxpayer is still living. The gift tax supplements the estate tax, which taxes gifts made upon death. The gift tax was created to frustrate the attempts of those... Read more.

Law Commentary Legal News

Share This Page: