Going Back to School Later in Life Can Lead to Some Tax Benefits
There are many reasons to consider going back to school; to simply enrich your life, or to improve your prospects at your current job, or make you more marketable when searching for a new job. What many people do not realize, is there are several tax benefits which you may take advantage of by returning to school.
Employer Education Assistance
If your employer offers tuition reimbursement, you may be concerned about the impact on your taxes. However, what you may not be aware of is that the first $5,250 of assistance is not considered taxable income. You may take classes related, or unrelated to your current position at work and still be reimbursed without increasing your taxable income.
The Lifetime Learning Credit
For single, head of household, or widowed taxpayers with a modified adjusted gross income of $65,000 or joint filers who are married $131,000, there is a lifetime learning credit of up to $2,000. This credit may only be applied to taxes owed; there is no reimbursement if you have no tax obligation. This credit is available for students who pay for books, class fees, or other education-related expenses. Unlike other credits, this has far fewer restrictions, and includes expenses paid into the first quarter of the following tax year. What this means is that expenses paid during January, February or March of 2017 could be included on your 2016 tax return.
The American Opportunity Tax Credit (AOTC)
Qualified education expenses incurred during the pursuit of a four-year degree may be credited for students who are enrolled at least half-time, are pursuing a credential or degree that is recognized, and have not claimed the HOPE credit, or another AOTC for four years. The student must not have completed a four-year program at the start of the tax year. In the case of this credit, if the taxpayer owes no money, they may receive up to $1,000, or up to 40 percent, of the remaining credit as a tax refund.
Tuition and Fees Deduction
Provided a taxpayer is not married filing separate returns, they may be able to deduct tuition, and fees from their taxes. It is important to remember, your income must meet certain guidelines, and you cannot be claimed as a dependent on another person’s return. Taxpayers need not itemize deductions to claim tuition, fees, and interest paid on student loans. There are other limitations including employer paid tuition, funds received from tax-free tuition accounts such as a 529 plan, or tax-free savings bond interest.
Taxpayers who are returning to school later in life may not be aware of what credits, and deductions they are eligible to take. You can ensure you are not missing out on valuable credits or deductions by working with the tax professionals at Rue & Associates. Contact us to set up an appointment. We can help you determine what credits, and tax benefits you may be entitled to take as a student.