Tax Benefits that Can Make College More Affordable
There are hundreds of reasons why you can benefit from a college education. That aside, it’s well known that while college is a sensible way to improve your marketability, the cost of college is out of reach for many. The good news is that there are several tax benefits for college costs that can help make college more affordable.
College and Taxes: What You Should Know
Whether you’re the parent of a college student who is claimed as a dependent or you’ve returned to school to improve your chances of getting promoted at work, you should be aware of certain tax benefits. College costs including tuition and fees can be deducted from owed taxes. Thanks to tax credits including the American Opportunity Credit and the Lifetime Learning Credit, you could qualify for a tax refund even if you have little to no income.
Tax Benefits for Education
Filing taxes with the IRS is never easy; we have a complex tax code that makes it difficult for students who reside in one state and attend school and work in another. To make it further complicated, if you’re eligible for the Lifetime Learning Credit and the American Opportunity Credit in the same year, you have to decide which is more beneficial for your specific needs. This process can be confusing and this is one reason why it’s valuable to have the assistance of a professional tax advisor.
Funding Your College Education
If you are using student loans to pay for college costs, it’s important to keep in mind that you can deduct the interest you pay on those loans. There are also various means for funding an education including 529 plans and other tax-advantaged savings plans. Those who receive tuition assistance through their employer may be eligible to exclude a portion of these costs from any income. The current limit is $5,250 in education benefits that do not have to be claimed as income; this is assuming the education is necessary for your job or intended to help you get a promotion.
Retirement Savings Withdrawals
For those who have not previously saved for a college education, it is possible to take advantage of tax loopholes by drawing funds from an IRA or 401(k) plan. While these withdrawals typically incur a penalty and higher tax burden, if they are used for qualified educational-related expenses you can have any penalties waived.
Whether you have decided to go back to school, a parent of a college student, or a college student not claimed as a dependent on your parent’s taxes, it’s imperative to receive tax benefits associated with paying for college. If available education tax credits are used effectively, even those who have not earned enough money to necessitate filing a tax return may receive a refund. Contact Rue & Associates for additional information on how attending the university of your choice can become more affordable!