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US Education Tax Credits and Deductions

August 21, 2013

Education is important but expensive. In order to support those striving to obtain higher education, the US Congress has enacted certain tax benefits that can help you offset some of the costs of college. At AG Tax our professional accountants are often asked what credits and deductions are available to the taxpayer in regards to education expenses. Let’s take a few minutes and go over some common education expense related tax saving tools:

Education Tax Credits

American Opportunity Tax Credit (AOTC): The American Recovery and Reinvestment Act modified the existing Hope Credit making it available to a broader range of taxpayers until December, 2017. This credit (which can be up to $2,500 per eligible student), helps parents and students pay a part of the first four years of college costs. You may be able to receive up to $1,000 even if you owe no taxes since 40 percent of the credit is refundable. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

 • Lifetime Learning Credit (LLC): With this credit, you may be able to claim up to $2,000 ($4,000 if a student in a Midwestern disaster area as per tax return) on your federal tax return for qualified education costs (student must be enrolled in an eligible educational institution). It can help you pay for undergraduate, graduate, and professional degree courses – including courses to improve job skills – regardless of the number of years in the program. There is no limit on the number of years you can claim the Lifetime Learning Credit. To claim the credit, your modified adjusted gross income must be below $62,000 ($124,000 if married filing jointly).

Education Tax Deductions

 • Tuition and fees deduction: This is one of the most common ways of claiming a tax deduction for education costs. It is an adjustment to the total income filed on your tax return, thus reducing the amount subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American Opportunity or Lifetime Learning Credits. Students and their parents may be able to deduct up to $4,000 of qualified college tuition and related expenses. The tuition and fees deduction can be claimed only if the modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).

 • Interest on Student Loan: If you have taken out a student loan to pay for college expenses for yourself or your children, the interest paid on the student loan is generally tax deductible. As per the IRS rules, it can reduce your taxable income by $2,500 even if you do not itemize deductions. However, your modified adjusted gross income needs to be less than $75,000 ($150,000 if filing a joint return).

Business deduction for work-related education: If you incur an education expense to improve your present work skills or maintain your current job/salary, you may be able to claim such an expense as a tax deduction. As it would be an itemized deduction, the qualifying amount should be greater than 2% of your adjusted gross income. In addition, if you are using your car to travel your qualifying course, you can claim up to 55.50 cents per mile (for 2012) and 56.50 cents per mile (for 2013).

As a self-employed person, you would deduct the qualifying work-related education expense directly from your self-employment income, which reduces your taxable income subject to income tax and self-employment tax.

Education Savings Plans

 • 529 Plans: A 529 Plan is a college savings plan. The earnings are not subject to federal tax when used for eligible college expenses and, often not subject to state tax either. As per recent updates, the 529 Plan also covers “computer technology or equipment” expense under qualified education costs.

Remember, you can only choose one type of education credit per eligible student on your federal tax return each year. In the case where you are paying the college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis.

AG Tax LLP Can Help

The IRS provides a variety of tax incentives for families who are paying higher education costs. These tax credits, deductions, and savings plans can be advantageous. If applied in the right manner, the may reduce your tax liability and help you manage higher education expenses. Let our AG Tax professional accountants work for you, and help determine what education credits and deductions you might be eligible for.

Additionally, if you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.

As a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.

We can assist with:

  • Canadian Personal and corporate tax returns
  • Cross Border Taxation and Business Planning
  • U.S. Personal and Corporate Taxation
  • Disclosure of Foreign Assets and other information filings
  • Retirement planning
  • State Sales Tax & E-commerce Taxation
  • Estate Planning, Inheritance tax advice

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

  •  416-238-5920 (Greater Toronto Area, ON)
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  • 780-702-2732 (Greater Edmonton Area, AB)


Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.

ABOUTAylett Grant Tax, LLP
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
104–4220 98 St NW Edmonton AB, T6E 6A1
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
104–4220 98 St NW Edmonton AB, T6E 6A1

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