School's back in session! So are the expenses.
But your favorite relative, Uncle Sam, might be able to help.
There are many tax breaks that can help students, and their parents, cover education costs. The options are this week's Weekly Tax Tip.
Savings plans: There are two tax-advantaged educational savings plans.
A 529 plan is an increasingly popular way to pay for college costs. A recent study by education loan provider Sallie Mae found that 17 percent of families last year tapped 529 funds, the highest percentage since the study began in 2008.
The numerical name of this educational savings plan comes from the Internal Revenue Code section under which 529 plans were created. They are operated by a state (every state has at least one 529 plan) or educational institution and help families set aside funds that can be withdrawn tax-free to pay future college costs.
Contributions to a Coverdell Education Savings Account are more limited, just $2,000 a year. However, that money and subsequent earnings can be withdrawn tax-free as long as they are used to pay eligible schooling costs.
And the costs don't have to be for college. Qualified Coverdell expenses include those in kindergarten through a student's senior high school year.
Education tax credits: The American Opportunity Tax Credit (AOTC) replaced the Hope Credit in 2009 has been extended through the 2017 tax year.
The AOTC is worth up to $2,500 plus up to 40 percent of the new credit is refundable. This could get you as much as $1,000 back from the Internal Revenue Service even if you don't owe any taxes.
While the AOTC is available for expenses incurred during the first four years of college, the Lifetime Learning Credit can be used to pay for undergraduate, graduate or even course work to improve job skills.
The Lifetime Learning credit could cut up to $2,000 from your tax bill.
Other educational tax options: There also are tax breaks for savings bonds used to pay for some school costs, employer assistance of up to $5,250 as nontaxable income to cover school expenses and the above-the-line deductions for tuition and fee expenses and up to $2,500 in interest you pay on a college loan.
Even adult students get another shot at tax help from the tax code. If you take work-related courses and can't use the Lifetime Learning tax credit to pay them, you might be able to deduct the continuing education as a business expense. Include the work-related study costs as part of the miscellaneous deductions section when you itemize on Schedule A.
Do your homework. IRS Publication 970 is a handy course guide. A good grade on these educational tax benefits could make a big difference.
You also might find these items of interest:
