Tax Write-Offs for College

By taking advantage of tax incentives for continuing your education, you could reduce your tax liability and garner a larger refund. If you attend a qualified institution, you are eligible to write off many of your education-related expenses on your tax return. How well you understand the rules governing these tax incentives will determine whether you take full advantage of these benefits at tax time.

Tax deductions and credits provide assistance for qualified education expenses. Included in such expenses are the costs of tuition and fees to enroll in a school and course-related expenses such as books, fees, supplies or other costs to attend an eligible college or institution. Not included in the category of qualified education expenses are room and board, travel, clerical help or any equipment not required for your course of study. You are also prohibited from claiming any tuition or credit deductions if your filing status is married filing separately, or if another person can claim you as an exemption, or if your modified adjusted gross income is more than $80,000 ($160,000 if filing jointly) in 2011.

The American opportunity credit and the lifetime learning credit are the two credits available to taxpayers. The maximum credit available for the American opportunity credit is $2,500, while the lifetime learning credit offers a maximum credit of up to $2,000. The American opportunity credit is geared toward students who are pursuing an advanced degree, while the lifetime learning credit is available to all students, regardless of whether they are enrolled in a degree program. Claim both credits using IRS form 8863.

Although credits are viewed as more advantageous than deductions because they reduce the amount you pay in taxes rather than the amount of income subject to income tax, both are advantageous. The tuition and fees deduction can reduce the amount of your income subject to income tax by as much as $4,000. You are eligible to claim the tuition and fees deduction if you paid for qualified education expenses for yourself, your spouse, or your dependents. To claim this deduction, complete form 8917 and include it with your filing.

If you pay education expenses for more than one child in college, you can choose to take the American opportunity credit and the lifetime learning credit on a per-student, per-year basis. You also can deduct qualifying work-related expenses as business expenses on your income tax return. To qualify, the education must be mandatory and must maintain or improve the skills required for your current job.

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