TAX TIP No. 36

Anyone paying higher-education expenses might want to study his or her tax return. Both the 1040 and 1040A contain a valuable lesson on how to write off up to $4,000 of college costs without having to itemize.

Plus, in addition to counting qualified education expenses paid for academic periods in 2008, you also can claim eligible expenses you paid last year to cover school sessions that begin during the first three months of 2009. For example, if you paid $1,500 last December for coursework that begins March 1, that prepayment can count in figuring your 2008 deduction amount.

One of the best things about the tuition-and-fees deduction this filing season doesn't actually have anything to do with the tax break itself. Rather, it involves the process for claiming it. The tuition-and-fees tax break is found right on the 2008 returns: line 34 of Form 1040 or line 19 of Form 1040A.

Applies only to specific expenses 

Note the name. Only payments for tuition and fees count. No room, board or book costs are eligible.

For 2008 and 2009 tax years, however, the definition of qualified education expenses is expanded for students attending a school in some Midwestern disaster areas. These students can count the cost of books and supplies. The affected areas are in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin. Table 3-2 near the end of chapter 3 in Publication 970, Tax Benefits for Education, lists the specific counties.

Also, be sure your courses pass Internal Revenue Service inspection. In addition to being college-level, they must be for legitimate educational reasons. Sport, hobby or noncredit courses don't qualify unless the class is required as part of a degree program, for example, an archery class necessary to earn your B.S. in physical education.

Did you use other tax-advantaged education funds to pay your schooling costs? Those distributions could reduce, or possibly eliminate, this tuition-and-fees tax deduction. If you used money from a state tuition plan, a Coverdell educational savings account or interest on savings bonds you cashed to pay for class, you have to subtract those amounts from your expenses to arrive at the allowable deductible amount.

Some filing-status issues need to be considered. Married couples, for example, must file a joint return to take this deduction.

If you're a college student who is claimed as a dependent on your parents' return, be careful when it comes to this tax break. You can't take the deduction yourself even if you paid your tuition with your own money. In this case, neither you nor your parents get the deduction. And even if your parents don't claim you as a dependent, if they can, that possibility alone means you can't take the tuition-and-fees tax break.

Money limits 

On 2008 returns, the tuition-and-fees deduction could be as much as $4,000. This amount, however, applies to all qualified expenses paid last year, not paid per student.

So you can't claim the $4,000 spent toward your MBA course work and another $4,000 you paid for your daughter's freshman year at State U. (However, if your course work is employment-related, you might be able to claim it as a miscellaneous expense on Schedule A. Remember, though, you'll have to meet the 2 percent of adjusted gross income threshold for the schooling costs to be of any itemized tax benefit.)