By A.J. Gross, C.P.A., E.A.
You are working hard on your college education. The costs for tuition and books are expensive. To help you with the cost of college, there are IRS tax breaks available to you.
American Opportunity Credit –The American Opportunity Credit is up to $2,500 annually for qualifying college expenses. The American Opportunity Credit was put into law in 2009. This credit will be available up to 2017. Hopefully, congress will extend the credit further.
The American Opportunity Credit can be claimed annually for the first four years of college. The years you attended college do not have to be consecutive. For example, you attended college for one semester in 2008. Then you decided to take time off. You started taking college courses again in 2010. You attended college for every year thereafter until you graduate in 2013: 2010, 2011, 2012, and 2013. You can claim the American Opportunity Credit for tax years 2010, 2011, and 2012. 2013 does not qualify for this credit because the one semester of college in 2008 is considered one year for this credit. However, you can claim the Lifetime Learning Credit for tax year 2013 which is discussed next.
Lifetime Learning Credit – The Lifetime Learning Credit is 20% of all tuition paid up to $10,000. The maximum credit is $2,000. You can claim this credit after you attend school for four years. The Lifetime Learning Credit can be claimed long after you graduate from college.
Student Loan Interest Deduction – You can deduct from income up to $2,500 of qualified student loan interest. Student loans are being paid on a monthly basis. The interest paid on the loans may qualify for a deduction.
Business Deduction for Work-Related Education – An employee may deduct all qualified work-related education as an itemized deduction. Under specific circumstances, an employee may deduct the full cost of an advanced college education. We recommend you seek the advice of a tax professional before you decide to deduct the cost of your college education. For some employees, the cost to earn a Master’s of Business Administration (M.B.A.) degree is fully deductible. For other employees, the cost to earn a MBA is not deductible. This has to be fully evaluated based on your situation.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.
com or www.ALGTaxSolutions.com.