Education credits can be overlooked

Feb. 07, 2013 @ 07:25 PM

With Rutherford County residents in the midst of getting taxes prepared, there are some credits and deductions that may be overlooked by those who are either taking or have students taking higher education classes.

“The decision to attend an institution of higher education or to send a child to college is a significant financial commitment – perhaps more so now than ever,” said Dan J Thomas, Enrolled Agent, who operates Jackson Hewitt offices in the Forest City at the Tri-City Mall and inside Walmart. “But there is a ‘silver lining’ that comes in the form of tax benefits for those who qualify, provided that students and their parents know where to look.”

Thomas said there are some common education-related credits and deductions that can create an increase in a tax refund or reduce a tax liability such as:

• Student Loan Interest Deduction: With the Federal Reserve identifying student loan debt as the largest form of consumer debt outside of mortgages, it is imperative for taxpayers to fully understand their tax options when it comes to these loans. The student loan interest deduction allows qualifying taxpayers to deduct up to $2,500 of interest paid on a qualified student loan to attend an accredited, higher education institution. For loan interest to be deductible, the loan must have been for the taxpayer, taxpayer's spouse, or the taxpayer's dependent when the loan was obtained.

• American Opportunity Credit: Set to expire at the end of 2012, this allows a credit of up to $2,500 for the qualified tuition and related expenses paid for each eligible student. This credit can be claimed for the first four years of postsecondary education for each eligible student enrolled at least half time in a qualified program. This credit is often used to reduce the weight of textbook and course materials costs, which College Board found to average $1,168 per student at a public four-year college for the 2011-12 academic year. Eligible expenses include tuition, required fees and the cost of required books and software for courses. The American Opportunity Credit is unique because 40 percent of it is a refundable credit which allows taxpayers with no tax liability to receive this portion of the credit as a refund.

• Lifetime Learning Credit: Taxpayers may be eligible for a credit of up to $2,000 each year for the total qualified tuition and related expenses paid during the tax year for all eligible students enrolled in a qualified educational institution. Unlike the American Opportunity Credit, the Lifetime Learning Credit is not based on the student's workload and is not limited to the first four years of postsecondary education. Expenses for graduate-level degree work are eligible for the Lifetime Learning Credit.

• Employee Business Expense: Taxpayers who take courses to improve their job skills, to satisfy their continuing education requirements for their professional credentials, or for reasons otherwise related to their current job, may deduct the cost of their tuition, associated fees, books and supplies, and mileage from work to school. The expenses are not deductible if the course is not job-related or would qualify the taxpayer for a job in a new field.

“One reason these credits and deductions are commonly overlooked is because of the multiple requirements and stipulations attached to each. Many eligible taxpayers are required to choose between claiming the American Opportunity Credit, the Lifetime Learning Credit, or the Employee Business Expense deduction,” Thomas said. “Claiming an education credit is usually more beneficial than claiming a deduction, because a credit offsets tax liability dollar for dollar rather than reducing the amount of income subject to tax. This is a good example of somewhere using a trained and trusted tax professional may even pay for itself.”