Back to School Savings
by Kelly Crawford
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It's that time of year again: students of all ages are making preparations to return to school, and retailers are hitting us heavily with SALES! We've all figured it out by now that a sale doesn't always mean there will be savings. Children see right through it: a sale simply implies Mom and Dad can spend more, right? All jokes aside, is there an education credit or deduction for all those school supplies when it comes time to file your taxes?
Most education credits are designed for higher education. Teachers and various other educators can take a deduction on supplies they purchase, but parents purchasing school supplies for their school-aged children cannot. But if you have a child or dependent in college, you may claim the American Opportunity Credit, the Lifetime Learning Credit, Student Loan Interest Deduction, or Tuition and Fees Deduction. Let's look at each one briefly.
The American Opportunity Credit was created to offset the costs of higher education by reducing your income tax. You may take up to $2,500 for qualified education expenses paid for each eligible student for up to four years. As with all good things, there are rules and qualifications. To claim this credit, all three of the following must be met:
- You pay qualified education expenses of eligible higher education.
- You pay the education expenses for a qualified eligible student.
- The eligible student is yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
Like the American Opportunity Credit, the Lifetime Learning Credit is also used to offset costs associated with higher education. However, as the name implies, there is no limit to the amount of time you can claim this credit. You may claim up to $2,000 each year for qualified education expenses paid for all eligible students. The same requirements above also apply if you want to take the Lifetime Learning Credit.
A couple of deductions you may be able to use are the Student Loan Interest Deduction or the Tuition and Fees Deduction. If your modified adjusted gross income is less than $75,000 ($150,000 for married filing jointly), you may use the Student Loan Interest Deduction for paying interest on a loan for higher education. This deduction will reduce the amount of your taxable income by up to $2,500.
With the Tuition and Fees Deduction you may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or for your dependent(s). The qualified education expenses must be for higher education and this deduction may reduce your taxable income by $4,000.
For more information about these education credits and deductions, please refer to Publication 970.
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