The taxpayer has several tax credits and deductions they can claim to reduce their income tax if they have incurred education costs during the year. The difficulty is claiming the one which creates the greatest benefit.
The first step in selecting the credit or deduction that is most beneficial to your circumstances is to compare and contrast the requirements of each tax incentive. The most common education tax incentives to consider include the following:
- American Opportunity Credit
- Lifetime Learning Credit
- IRA Withdrawals for education expenses
- Savings Bond interest exclusion
- Student Loan Interest Deduction
- Tuition and Fees Deduction
- Qualified Tuition Programs
- Educational Savings Accounts
Each education tax incentive has different requirements, but all can be compared and contrasted using the following questions:
- What is the tax benefit provided;
- What is the annual limit of the tax benefit;
- Which education costs are considered to be qualified education expenses;
- Who incurred the qualified education expenses;
- What education program is the student enrolled;
- What other requirements or limitations exist; and
- When is the tax benefit phased-out because of the taxpayer’s income?
Once the taxpayer knows which tax incentives they are eligible to claim, they can then begin the next step of evaluating which one creates the greatest tax benefit (i.e., the one that will generate the lowest tax liability or greatest refund when claimed).
Contact Flexible Accounting Services of the Triangle today and let us assist you in evaluating which tax credit or deductions you can claim to maximize your tax refund or lower your tax liability.