As we all know, being in education can be a very expensive time. It often has significant costs (accommodation, food, bills, books etc) and, because it can take up a lot of your time, you are often left with little or no time to work to pay for your education.
Thankfully the government recognises this fact, and also realizes that education is crucial to our country’s long-term growth prospects. As a result, it offers several tax breaks for those in education. The following are a few of the more common ones, which may well apply to your or your children:
1. College Costs
If your income is below a certain level, currently $65,000, you are allowed to claim up to $4,000 in tax breaks on your college costs. Even if you income is higher than this ($65,000 – $80,000), you can still claim $2,000 in reduced taxes.
To claim back tax on the costs of your education, you need to complete an IRS Form 1040.
2. Tax Credits
There are a couple of tax credit schemes that you can take advantage of if you have low to moderate earnings. The first is the Hope Scholarship, which can be worth up to $1,500 for each of your first two years at college. The second is the Lifetime Learning Credits scheme, which is worth up to $2,000 per taxpayer.
There are a couple of conditions which apply to these schemes – first, a student may only make use of one of them each year. Second, you are not allowed to withdraw money from certain types of saving account while claiming a credit. Third, you are not allowed to claim college expenses at the same time. However, both schemes offer significant advantages, making them well worth investigating.
3. Tax Free Educational Accounts
There are a couple of types of bank account that you can use to protect your savings from tax, and to help fund your education. These are Education Savings Accounts (ESAs) and section 529 plans. In both cases, your money is not taxed provided you withdraw it and use it to pay for legitimate education expenses.
The only real downside to using these accounts is that they may make you ineligible for other types of educational funding help, so you should check with your financial advisor or speak to someone at your bank to help you decide which is best for you.
As you can see, funding your education doesn’t have to be as expensive as it can seem. The government has provided a number of tax benefits for students, but it’s up to you to make the most of them.