empty classroom before lectureIt’s back to school time; many stores offer Back to School specials to help parents and students save money while getting all the supplies they need for the school year.

Schools can be very expensive, so we at US Tax Shield decided to share with you some helpful tax tips on how to offset education costs and get some tax relief.

Tuition and Fee Deduction
The most straightforward one is tuition and fee deductions. You can deduct up to $4,000 on qualifying expenses, such as tuition, fees and course-required materials only if fees and expenses are required as a condition for enrollment and attendance.

This deduction is an adjustment to your gross income, meaning it will reduce the amount of your taxable income. Please keep in mind that you cannot deduct the college expenses and claim any of the following educational credits.

Do you have a student loan?

Under certain circumstances, such as adjusted gross income of under $75,000 ($150,000 if filing a joint return), you are allowed to take a special deduction for paying interest on a student loan. This deduction can reduce the amount of your taxable income by as much as $2,500.

Qualifying expenses for the purpose of the student loan deduction are the total cost of attending an eligible educational institution – including room and board, transportation in addition to tuition, fees and course-required materials.

Scholarships, Fellowships and Grants

Generally speaking, scholarships and fellowships are tax free as long as the amount you received does not exceed the qualifying expenses and does not represent payment for teaching, research or other services required in order to receive a scholarship.

Qualified expenses include tuition and fees required to enroll or attend an eligible educational institution and course-related expenses, such as required course materials, fees, supplies and equipment. Please note that these course-related materials must be necessary in order to enroll or attend the educational institution and are mandatory for all students attending.

Grants are treated as scholarships – they are tax free as long as they are used for qualifying educational expenses during the time period for which the student has received the grant.
students study on campus

The Hope Credit

This credit can help students and their parents to pay for the first two years of college for 2008 and earlier tax years. For the year of 2009 some college students in Midwestern disaster area can claim up to $3600 if they did not claim the American Opportunity Credit for the year of 2009.

The American Opportunity Credit

The American Opportunity Credit modifies existing Hope Credit making it available to wide range of taxpayers, including those with higher income and those who owe no taxes for tax years of 2009 through 2017. The American Opportunity Credit included required course materials, certain fees and equipment as qualifying expenses, and allowed the credit to be claimed for four post-secondary education years instead of two.

To qualify the student must be enrolled in a program leading to a degree, certificate or recognized post-secondary educational credential, has not completed four years of the post-secondary education at the beginning of the tax year, carrying at least half of full-time work load for at least one academic period and has no convictions of felony drug offense.

Many of eligible taxpayers will also qualify for the maximum annual credit of $2500 per student. Full credit is available to those whose modified adjusted gross income is $80,000 or less (or 160,000 for married couple filing jointly). Those who owe no taxes for the tax year they claim credit for or if the credit exceeds your tax liability, you will be refunded the excess to the lesser of 40 % of the credit, or $1000.

Lifetime Learning Credit

This credit can help pay for undergraduate, graduate and professional degree courses not limited by the years in the program. Eligible tax payers can qualify for $2,000, $4,000 if a student attended college in Midwestern disaster area.

This credit is non-refundable – it can reduce the amount of income tax you owe, but it won’t refunded to you should its amount exceed your tax liability. You can only claim either Lifetime Learning or the American Opportunity Credit for the same student for the same tax year, but not both.
While credits usually provides for greater tax savings, you should always check both options to see which one would be more beneficial for you and your particular situation.

Helpful links:

To make sure your school is eligible for either American Opportunity Credit or Lifetime Learning Credit, please click here

For more information on Tax Benefits for Education, please read Publications 970 Tax Benefits for Education