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Health & Fitness

Education Tax Credits and Deductions

Many taxpayers are eligible for education credits and deductions. Have you spoken with your tax preparer to ensure you are receiving the maximizing credit or deduction?

Tax Benefits For Education Are Not Always Simple To Claim

The Internal Revenue Service would have taxpayers believe that it is a relatively easy process to claim tax benefits for education on your federal income tax return. If that were the case, you could stop reading at this point.

Warning bells appeared in a report released in October by the Treasury Inspector General for Tax Administration, an office that oversees the work of IRS. Auditors found some startling information in their review of tax returns filed during the first half of 2010.

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TIGTA says that 2.1 million taxpayers received erroneous education credits totaling $3.2 billion. A rather startling fact is that 1.1 million (or 52 percent) of those taxpayers had their returns completed by a paid tax return preparer.

With this in mind and understanding a taxpayer is ultimately responsible for the accuracy of a tax return that he or she signs, here is a primer on the available tax benefits for education.

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Credits

A tax credit lowers the amount of income tax that may be payable. There are several credits that are available.

The first credit is the American Opportunity Credit. Originally, this credit modified the existing Hope credit for tax years 2009 and 2010, but it was extended to cover 2011 and 2012. The full credit is available to individuals with a modified adjusted gross income (MAGI) of $80,000 or less and to married couples filing a joint return with an MAGI of $160,000 or less.

The second is the Hope credit which generally applies to 2008 and earlier tax years. This credit applies to the payment of the first two years of post-secondary education tuition and related expenses.

The third is known as the lifetime learning credit. For each tax year, it is possible to claim a credit of up to $2,000 for qualified educational expenses. There is no limit regarding the number of years this credit can be claimed for a student.

Deductions

A deduction reduces the amount of income that is subject to tax. There are a variety of available deductions it may be possible to claim.

For example, you may be able to deduct qualified education expenses for higher education, such as tuition and fees. This deduction is capped at $4,000.

There are also the student loan interest deduction and a business deduction for work-related education. Qualifying work-related education must meet one of two tests – education that is required by an employer or by law or education to maintain or improve skills.

Additional Tax Benefits for Education

There are yet more possible tax benefits. These can be savings plans, such as 529 plans (Internal Revenue Code Sec. 529) and the Coverdell Education Savings Account.

There are also benefits involving scholarships and fellowships, as well as certain exclusions from income.

In summary, there are many possible tax benefits for education but you must know the proper way to claim them. If you don’t think you can navigate these somewhat tricky waters on your own, it is best to seek the assistance of a qualified tax preparer.  If you don't currently have a tax preparer, or simple want a second opinion, Reuben Mann of Tax In-House would be happy to discuss education credits/deductions and any other tax matter, with you. Reuben can be reached at (404) 537-3000; rmann@taxinhouse.com.

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