Kids aren’t the only ones heading back to school. Many adults are also taking courses to pursue a new career or improve their current job skills. Fortunately, adult students may qualify for several tax breaks. Here are four possible options:
1. American Opportunity Tax Credit (AOTC). The AOTC is one of two credits for qualifying higher education expenses. The maximum credit of $2,500 is phased out based on income. To qualify, you must be enrolled at least half-time and not have finished four years of higher education. The credit does not rule out your eligibility because of age.
2. Lifetime Learning Credit. If you can’t claim the AOTC, you may be able to use the lifetime learning credit (because you can generally only claim one credit in a tax year). The maximum lifetime learning credit is $2,000, as opposed to $2,500 for the AOTC, and there is an income phaseout that occurs at lower income levels than the AOTC. But you don’t have to be enrolled half-time and the credit isn’t restricted to four years of study. It’s even available if you take just one class.
3. Student loan interest deduction. Do you need to borrow money to pay for schooling? If you qualify, you can deduct up to $2,500 of your annual student loan interest on your tax return. The deduction is subject to a phaseout based on income. Keep in mind that to claim this deduction, you need to be the one who is repaying the loan.
4. Educational assistance plans. Perhaps the best way to go back to school is to have your employer pay for it. With a written educational assistance plan that meets all the tax law requirements, the first $5,250 of education expenses paid by your employer is tax-free to employees and deductible by the employer. The coursework doesn’t even have to be job-related.
Education tax breaks aren’t just for kids. Each of these educational tax saving opportunities is filled with additional rules and requirements. One of my primary objectives is to help you achieve your financial goals through a holistic approach that is also tax efficient in my wealth management practice.
For more information visit www.fredtfoxiii.com.