Education can be expensive, but there are tax benefits designed to alleviate this burden. Knowing about tax credits, deductions, and savings plans can help you or your dependents with the costs associated with education.  In this overview, we will cover:

  • The importance of understanding education-related tax benefits
  • How education expenses impact your taxes
  • Strategies for tax planning with education costs in mind

Understanding Education Tax Credits

  • American Opportunity Tax Credit (AOTC)
    • Qualifications for AOTC
    • How to claim AOTC
  • Lifetime Learning Credit (LLC)
    • Differences between AOTC and LLC
    • Claiming LLC on your tax return

Tax Deductions for Education

  • Student Loan Interest Deduction
    • Eligibility for deducting loan interest
    • How to claim the deduction
  • Tuition and Fees Deduction
    • Qualifying expenses for deduction
    • Claiming the deduction on your tax return

Savings Plans for Education

  • 529 Plans
    • Benefits and limitations of 529 plans
    • How to contribute to and withdraw from 529 plans
  • Coverdell Education Savings Account (ESA)
    • Comparison of ESA and 529 plans
    • Contribution limits and phase-outs

Scholarships, Fellowships, and Grants

  • Tax treatment of scholarships and grants
  • How to report tax-free educational assistance
  • Coordination with education credits

Educational Assistance from Employers

  • Employer-provided educational assistance
    • Exclusions from income for employer benefits
    • Limits and reporting requirements

Final Thoughts

  • Yearly checklist for education-related tax planning
  • Important IRS forms and publications to review
  • Seeking professional tax advice for education planning

 

Detailed Bullet Points for the IRS Sections:

  • IRS References:
    1. American Opportunity and Lifetime Learning Credits: IRS Publication 970
    2. Student Loan Interest Deduction: IRS Topic No. 456
    3. Tuition and Fees Deduction: Reinstated in previous years by tax extenders, consult latest IRS guidelines or a tax professional for current status
    4. 529 Plans and Coverdell ESAs: IRS Publication 970
    5. Employer’s Tax Guide to Fringe Benefits (for educational assistance): IRS Publication 15-B