Paying for an education can get expensive. However, there are a few avenues that you can take when it comes time to file your taxes that can help save you some money. Here are some of the most common education tax breaks.
An education credit, known as the American Opportunity Tax Credits and the Lifetime Learning Credit, will help reduce the amount of taxes that you owe. These credits can be claimed on yourself, a spouse, or a dependent child who is working towards a degree in higher education. There are certain eligibility requirements for the institution being attended in order for this credit to apply. If you are married and are claiming the credit on behalf of your spouse who is attending school, you cannot file your taxes separately.
Student Loan Interest Deduction
This deduction allows you to deduct up to $2,500 or the interest that you paid on your student loan throughout the year (whichever is less). While these deductions can be used for your spouse or dependent attending school, you must be “legally obligated” to pay back the loan in order to qualify. If you’re being claimed as a dependent by your parents or guardians, you are not eligible for this deduction. Learn more on the IRS website.
Education Savings Plan
In the state of Utah, this is known as a 529 Plan. This type of savings plan has no age, income, or residency restrictions. As long as the money is used for qualified expenses (such as room and board, tuition, books, etc.), it is not subject to federal or state tax. If the beneficiary of the account decides not to receive higher education, the funds will remain in the control of the accountholder.
The information contained in this blog post is intended to be educational and may not be a good fit for your situation. Contact a professional with any specific questions or concerns regarding your finances or taxes.