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5 tax breaks every student should know about

5 tax breaks every student should know about

It's taxing enough to earn a higher-education degree. Luckily, several valuable tax credits and deductions can ease a student's IRS burden. Kim Cole, a certified public accountant and instructor in the MBA program at University of Phoenix, recommends five ways to save money when calculating your taxes:

1. Deduct your tuition fees.

You can take up to $4,000 off your gross income for tuition and other necessary school fees, thus lowering your taxable income. "For example, if you make $40,000 and you paid more than $4,000 in tuition and fees, then your adjusted gross income goes down to $36,000," Cole says.

There are some inevitable restrictions on this deduction, including income caps. Individuals can use this deduction only if they make $80,000 a year or less, and married couples who file jointly cannot make more than $160,000.

2. Tap the American Opportunity Tax Credit.

Students who attend college full time and part time are eligible for this $2,500 tax credit for the first four years of undergraduate education. "If your tax bill is $3,000, you only owe $500," Cole says. "It's like having Uncle Sam pay your taxes. [Students] should take this in their first four years of college."

To qualify, individuals can't make more than $90,000 a year; married couples filing jointly have an income cap of $180,000. The other catch? You can't claim both the American Opportunity Tax Credit and the tuition fee deduction.

3. Take a tax credit for a lifetime of learning.

You don't have to be a full-time student to get a substantial tax break. "After four years of college, [students] can take a Lifetime Learning Credit [every year] that is up to $2,000," Cole points out. Unlike the four-year limit on the American Opportunity Tax Credit, the Lifetime Learning Credit doesn't restrict the number of years you can use it. This credit also applies to courses that are required for a job.

You might even be able to include the cost of textbooks in this credit. "But in this case," Cole warns, in order to qualify for the credit, "the books have to be purchased from the university as a condition of enrollment." There is also an income limitation for the 2011 tax year of $61,000 for individuals and $122,000 for married couples filing jointly.

4. Take a tax credit on a tuition loan.

Students can take a tax deduction or tax credit even if they take out loans to pay tuition. "A lot of people feel they can't take it because they borrowed the money," Cole says. "They feel it's not their money. But that doesn't matter."

5. Deduct the interest on a student loan.

You can deduct up to $2,500 of the interest you pay on a qualified student loan. Interest on any money borrowed for tuition, room, board and other school expenses is fair game. This deduction is for individuals who earn up to $75,000 and for married couples filing jointly with an income up to $150,000.

 

The information provided in this article is NOT tax advice. It is offered only as general information for University of Phoenix students and their families. Please consult a qualified tax expert for advice on computing, claiming or determining qualification for any tax benefit mentioned in this article.

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