Education tax benefits cheat sheet
Teachers and students are back in the classroom – and may need some education on the education tax benefits that can help them with their expenses.
“Education tax benefits, which can save students or their parents as much as $2,500, are commonly overlooked,” said Lynn Ebel, manager at The Tax Institute at H&R Block. “So many taxpayers miss these benefits because of their complexity. Depending on the kind of academic program, what year the student is in, income and other factors, a student may qualify for several different tax benefits so it’s important to choose the one that maximizes tax savings.”
Student-approved education tax benefits
The Lifetime Learning Credit, up to $2,000, is for taxpayers who pay education expenses, such as tuition and fees, for themselves, their spouses or their dependents. This credit does not require the student to pursue a degree, making this an option for anyone acquiring or improving their job skills through an eligible educational institution. More detailed eligibility requirements relate to a taxpayer’s income and filing status.
The American Opportunity Credit, up to $2,500, is for taxpayers who pay tuition and fees and purchase course materials for themselves, their spouses or their dependents. The credit has more restrictions than the Lifetime Learning Credit, but on the up side, it can also be claimed for the cost of books and other course materials, which is all important to students facing textbook inflation of 945 percent over the last 30 years.
A taxpayer cannot claim both the Lifetime Learning and the American Opportunity credits for the same student in the same year, so taxpayers will need to study up on which credit better suits their specific situation. Proper planning can maximize educational tax benefits.
The tuition and fees deduction allows students to deduct up to $4,000 for qualified higher education expenses, whether or not they itemize their deductions. In 2014, students deducted more than $3.87 billion in tuition and fees.
The tuition and fees deduction and an education tax credit cannot be claimed for the same student.
“Taxpayers should keep their Form 1098-T as well as accurate records of tuition and expenses so they can claim all the benefits they’re entitled to,” said Ebel.
Tax help for teachers
Teachers for grades K-12 can deduct up to $250 for classroom expenses, whether or not they itemize their deductions. Due to a recent change in the tax law, the $250 limit is now indexed for inflation.
Teachers may qualify to deduct some of their required continuing education expenses as an employee business expense. The teacher’s miscellaneous expenses must be more than two percent of adjusted gross income. Only the excess is deductible.
For more information on education tax benefits, students can read IRS Publication 970 or talk to a qualified tax professional.
By Annelise Wiens
As the newsroom editor, Annelise Wiens is interested in more than just tax and industry news, but the stories of H&R Block's 80,000 associates, their communities and H&R Block's world headquarters in Kansas City, Missouri. Wiens joined H&R Block in 2014 from a public relations agency, where she worked with clients in the financial services industry. Before that, she worked as a communicator for a senior member of the United States House of Representatives. She graduated from Biola University in La Mirada, CA with a degree in history.