Everything you need to know about Tax Benefits for Education
The new tax season is just days away. Those wanting to avoid the end of year tax stress will want to get their tax return on the way.
There are many tax credits, deductions and savings that can help taxpayers with their expenses incurred due to higher education. Tax credits work to reduce the amount of income tax you may have to pay, while tax deductions reduce the amount of your income that is subject to tax.
Saving plans have been tailored to allow accumulated earning to grow tax-free until money is taken out or allow the distribution to be tax-free. Exclusions from income mean that you wont have to pay income tax on the benefit you’re receiving.
Who can claim Education Credit?
There are three criteria you must fit into in order to claim Education Credit:
1. If you, your dependant of a third party pays qualified education expenses for higher education
2. An eligible student must be enrolled at an eligible educational institution
3. The eligible student is yourself, your spouse or a dependant that you list on your tax return.
Tuition and Fees Deduction
You can deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. You cannot claim the deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return.
Student Loans Interest Deduction
Personal interest that you pay, other than on certain mortgage interest, is not generally deductible. However, if your modified adjusted gross income is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education.
What are qualified ‘Education Expenses’?
Qualified education expenses are determined as the total costs of attending an eligible institution. Expenses can include Tuition Fees, Room, board, books, supplies, equipment and other necessary expenses such as transport.
Business Deduction for Work –Related Education
If you are an employee and can itemise your deductions you might be eligible to claim a deduction for the expenses you pay for work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of your adjusted gross income.