MONEY MANAGEMENTFrom the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®
HOW THE TAX LAWS CAN HELP LOWER YOUR EDUCATION COSTS
(March 2011) -- It’s no secret that sticker shock sets in quickly when you’re looking at education expenses. The price for yearly tuition alone can range from nearly $8,000 at public four-year colleges for in-state students to an eye-popping $35,000 or more at private four-year institutions, according to the College Board. And those amounts don’t include the cost of room and board as well as other expenses. The good news is that the tax laws offer a number of opportunities to minimize your out-of-pocket education costs, if you know how to make the most of them. The Virginia Society of CPAs (VSCPA) provides these valuable tips.
An important credit extended
Late last year, Congress voted to extend the American Opportunity Credit (AOC), which taxpayers can use to reduce their tax burden, for two years. Since 2009, it’s been possible to qualify for this credit for as much as $2,500 per student per year for qualified tuition and expenses during the first four years of post-secondary education. The credit covers not only school fees, but also course materials, which might include books, supplies and equipment. There are income limits on who can qualify for the credit, so check with your CPA to learn whether it applies in your situation. Keep in mind, too, that you can’t claim the credit unless you are enrolled at least half-time.
The Lifetime Learning Credit
If the AOC doesn’t fit your situation, look into the Lifetime Learning Credit. It is worth up to $2,000 per year for qualifying students and covers an unlimited number of years of education. It can be used for students who are going to school part-time and for classes that don’t necessarily lead to a degree. There are income limits, so ask your CPA for more details.
Tax advantages of loans and scholarships
Many students who carry a heavy debt load to finance their college education will be happy to hear that it’s possible to deduct up to $2,500 of the interest paid on a student loan, even if you don’t itemize deductions. To qualify, the loan proceeds must have been used for specific educational expenses, such as tuition, housing and board, fees, books, supplies, transportation and other related costs specified by the Internal Revenue Service (IRS). Once again, income limits apply. Your CPA can tell you more about how they work.
Scholarships and employer-paid expenses
Students fortunate enough to receive a scholarship or fellowship should be aware that they are not taxable as long as the recipient is a degree candidate and uses the money to cover qualified education expenses at an eligible educational institution. If your employer is picking up the bill for some or all of your education, the first $5,250 they ante up each year is not subject to federal income taxes. The money can be used for undergraduate or graduate courses, and it is not taxable even if the courses are not work related. Qualifying expenses include tuition, fees and similar expenses, books, supplies and equipment.
Tax savings on savings bonds
U.S. savings bonds are a popular gift that recipients often use to help defray college costs. It may not be necessary to pay taxes on the interest earned on qualified U.S. series EE bonds issued after 1989 or a series I bonds if the taxpayer meets certain income limits and other requirements. Your CPA can explain whether your bonds qualify.
Consult your local CPA
It’s clear that there are a number of ways to lower the high costs of
higher education. If you want to take advantage of these opportunities, be sure
to turn to your local CPA for advice. Your CPA can help you address all your
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
Lifetime Financial Planning, Inc.
Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional
2325 Dulles Corner Boulevard, Suite 500, Herndon, Virginia, 20171
208 South King Street, Suite 201, Leesburg, Virginia, firstname.lastname@example.org
Hourly Fee Only | Financial
Planning | Investment
Advice | College Savings Plans | College
Financial Aid |
©2001-2003 Lifetime Financial Planning, LLC, ©2004-2012 Lifetime Financial Planning, Inc. All Rights Reserved