TAX TIP No. 56
Tax credits help with higher education costs
Are you footing the costs of higher education for yourself
or your family? Let your Uncle Sam lend a hand.
|In this tax tip:
||Lifetime Learning credit
tax credits, the Hope credit
and the Lifetime Learning
credit, can help defray education
expenses for you and your
youngsters. And because they
are credits rather than deductions,
they take a bigger bite out
of your tax bill.
A deduction reduces your taxable income,
which can, but is not guaranteed to, reduce your final tax bill. A credit, however,
is subtracted directly from the final tax you owe.
The Hope credit is the tax
break you should look at first
if you're putting kids through
college, as long as one of
those years your kid is a
freshman or sophomore. For
2008 taxes, it could save
you $1,800 per student, twice
that for certain Midwestern
disaster area students.
This credit applies only to course-work costs spent in a student's
first two years of higher education. The schooling can be at a college or vocational
school, as long as the work at the institution leads to a degree or certification.
in mind that you can only claim the Hope credit two times for the same student.
So if your son didn't put in quite enough hours at university to be classified
as a junior and you already claimed the Hope credit for his expenses on two previous
tax returns, you can't use it again to cover his continuing education costs.
Lifetime Learning credit
In that case, your next option is the Lifetime Learning
credit. It can be used for undergraduate, graduate and professional degree courses
This means a qualifying course you took to improve
your current job skills or get new work could be partially paid for by the tax
If you meet Internal Revenue Service guidelines, you
can count $10,000 of your education expenses. If you have a child also going to
college and that child has eligible expenses, you can count those toward the $10,000
total, too, because the credit can be applied to all qualified education expenses
in a taxpayer's family.
however, don't translate directly
to your tax break. Rather,
you get to claim up to 20
percent of your eligible Lifetime
Learning expenses, which could
net you a maximum $2,000 credit,
twice as much for certain
Midwestern disaster area students.
Updated: March 25, 2009