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Education Tax Benefits – Raleigh NC

Understanding Education Tax Benefits

Education Tax Benefits - Raleigh NCPaying tuition has its education tax benefits if you, your spouse, or your child are actively attending an educational institute. There are more than one tax benefits that you may eligible to claim to get reimbursement on some of your expenses. Of course, there are exceptions to this rule. For example:


  • Expenses that are used to claim educational benefits may also be qualified to eliminate the 10 percent penalty for early IRA distributions.


You can choose one of these items to claim an education tax benefit each year for one student:


  • Deduction for Tuition and Fees
  • American Opportunity Credit
  • Lifetime Learning Credit


Education Tax Deductions


Deductions, tax credit, and savings plan can aid taxpayers with their expenses for higher education. Tax credits can reduce the amount of income tax that you have to pay. Deductions can also help lessen the amount of taxable income which generally reduces the amount of tax you will end up paying. Educational deductions may include:


  • Deductions for tuition and fees totaling up to $4,000 of your gross income (limitations may apply).
  • For tax years after 2014, the provision for deducting tuition and fees that are expired.
  • Deductions from your student loan(s) interest totaling up to $2,500 of your gross income (limitations may apply).
  • Any educational expense to benefit your business or farm may qualify for a business deduction on schedules C or F.
  • On Schedule A, there are miscellaneous itemized deductions that are eligible for the 2% AGI limitation. You’re able to deduct any unreimbursed educational expenses used to maintain your current employment and/or costs to expand your job skills. However, you cannot deduct expenses that qualify you for a new business or trade.


Savings Plan


Any contribution you make to an education savings plan(s) will not be deductible, though, the income accumulates tax-free.  Additionally, you will not owe taxes on distributions if the amount is less than the beneficiary’s eligible education expenses. Qualified expenses are reduced by amounts used to calculate education credits, scholarships, and other tax-free assistance.


Tax Credits


Education credits can help with higher education costs by reducing the amount of taxes owed on your return. If your credit brings your tax amount to less than zero, you may be eligible for a refund. You may meet the requirements for either the American Opportunity Tax Credit and/or the Lifetime Learning Credit. You can claim these credits on Form 8863.


IRA Distributions (Penalty-Free)


Withdrawing money from your IRA prior to reaching 59 ½ years of age will cost you a penalty of 10 percent of the distribution, along with any tax that is due on the dispersal.


  • The 10 percent penalty doesn’t apply to Roth IRA or traditional IRA withdrawals if the money is used pay education costs for yourself, your spouse, or any dependents.
  • Eligible education costs would include any tuition fees, supplies, books, special needs services, and equipment that is necessary for attendance or enrollment at a qualified educational institute. Room and board for any students who are enrolled at least part-time in a certificate or degree program can also qualify.
  • Lower qualified costs by any tax-free assistance you receive and scholarships that are not granted through inheritance or gift.


Gross Income Exclusions


Exclusion from your income is when you don’t report the benefit you get as income, and you do not pay tax on it. However, you can’t use the same tax-free benefits for credit or a deduction.


  • You can leave out the part of fellowships, scholarships, and grants you’ve used for qualifying educational costs so long as you are a candidate for a degree.
  • You can exclude a total of up to $5,250 that an assistance program has paid for your education costs. Any amount above that will be included in your income for your W-2 unless they’re considered a working condition fringe benefit. This describes a cost you would deduct as a business expense as an employee for expenses you paid instead of your employer.
  • If you cash your US Savings Bonds for qualified educational costs for yourself, your spouse, or your children, you can exclude the bond interest from your income (limitations may apply).


Numerous events arise throughout the year that can affect your tax standing. Preparing your tax return will involve summaries of your transactions and details of events that happened during the previous year. If you need assistance establishing what to itemize or claim for your education tax benefits, please contact our office to ensure you get the most out of your tax return.