If you or one of your dependents is heading back to school this year, remember that there are tax deductions and credits that may soften the blow of tuition, expenses and fees. Perhaps the most familiar is the tuition and fee deduction "tax extender" that is perpetually in jeopardy. As you may recall, this and other tax breaks were reinstated by Congress at the very last minute -- reinstated for 2014, that is, and immediately repealed for 2015. It may come back this year, but nothing is certain.
As we said in our last post, another option is the American Opportunity Tax Credit. Not everyone, however, will qualify. They do have an alternative tax break: the lifetime learning credit. This is not as generous as the AOTC, but it is still a break.
The lifetime learning credit covers as much as $2,000 of qualified education expenses, but the credit is for all students. The AOTC is a per student credit.
Taxpayers with student loans are likely aware of the interest deduction. The deduction is not available to anyone earning more than $80,000 individually or $160,000 jointly (modified adjusted gross income). In some circumstances, too, the amount of a student loan that is forgiven or canceled does not qualify as taxable income.
It isn't too late to start a Coverdell Education Savings Account. While contributions to the account are not deductible, but interest accrued is tax free. Under certain circumstances, the distributions may be tax free as well.
If you are lucky enough to have your employer reimburse you for education expenses, as much as $5,250 is not taxable. And, if the classes are related to your job, the tuition and expenses may qualify as a deductible business expense.
This is not by any means a comprehensive list. We highly recommend working with a tax professional as you plan for the rest of 2015 and your 2015 tax return.
Source: Accounting Today, "A Back-to-School Tax Break Refresher," Michael Sonnenblick, Sept. 22, 2015