Tax Strategies for Reducing College Costs
There are many ways to skin the academic cat.
This appeared in the Honolulu Star Bulletin (Feb. 18, 2007).
BY knowing the tax rules, college costs may be offset by tax deductions or credits on your tax return.
Education deductions:
The cost of tuition and fees to attend college or graduate school can be deductible for yourself, your spouse, or your dependents.
Married couples filing a joint tax return can deduct up to $4,000 annually of qualifying expenses. This deduction is claimed on your Form 1040 and you don't have to itemize to get it. If your modified adjusted gross income (AGI) is above $130,000 ($65,000 for unmarrieds) but not above $160,000 ($80,000 for unmarrieds), up to $2,000 of qualifying expenses will be deductible.
No deduction will be allowed if modified AGI exceeds $160,000 ($80,000 for unmarrieds) or for married taxpayers filing separately.
Qualifying expenses are those for tuition and enrollment but not the cost of books, room and board, student activity fees, athletic fees, insurance, transportation costs or other personal expenses and do not include certain scholarships and other tax-free educational assistance.
The deduction is not available for expenses incurred for an individual if the HOPE or Lifetime Learning credit is claimed for that individual that year.
Education credits:
Tax credits can be more beneficial for some. The HOPE credit and the Lifetime Learning credit are available for qualified tuition and related expenses paid to accredited schools or other recognized post-high school credential and certain vocational schools. These are expenses for tuition, books and academic fees, but not student activity fees, athletic fees, insurance expenses, room and board, and transportation costs.
The maximum HOPE credit is $1,650 per student (for both 2006 and 2007) for the first two years of undergraduate education, and is adjusted for inflation annually.
The maximum Lifetime Learning credit is $2,000 per year per taxpayer, for any post-high school education (including graduate-level coursed and courses to acquire or improve job skills) at an eligible educational institution.
Both the HOPE and Lifetime Learning credits are reduced if modified AGI is above $94,000 in 2007 ($90,000 for 2006) and is unavailable if it's more than $110,000 for married taxpayers filing a joint return.
For unmarried filers the phase-out range is $47,000 to $55,000. The credits are not available to married taxpayers filing separate returns. . . .