Take advantage of tax savings if you are pursuing higher education. If you are a student or parent with an eye toward maximizing your tax deductions, connect with Military OneSource MilTax to get everything you qualify for. MilTax consultants have extensive knowledge of tax benefits for military families and can help you identify tax incentives for education expenses and student loan payments.
There are three main sources of tax savings on college expenses: tax credits, tax deductions and savings plans benefits.
If you pay higher education expenses for yourself, your spouse or a dependent, you may qualify for an education tax credit, which can reduce the amount of federal income tax you owe. Consider these two options:
- The American Opportunity Tax Credit allows you to claim a maximum annual credit of $2,500 per student for qualified expenses paid during the first four years of college.
- The Lifetime Learning Credit lets you claim a credit of up to $2,000 per year for undergraduate, graduate and professional students, for an unlimited number of years.
Higher education expenses can also help reduce your taxable income. Here are a few tax deductions that you may qualify for:
- A student loan interest deduction allows you to deduct up to $2,500 of the interest you’ve paid on qualified student loans. You won’t have to itemize your tax return to receive this deduction either, and you may qualify for it if your modified adjusted gross income is less than $75,000 (or $155,000 if you file a joint return).
- A business deduction for work-related education lets you claim a deduction for work-related education expenses if they are more than two percent of your adjusted gross income. A MilTax consultant can help you itemize your taxes and meet other requirements set by the Internal Revenue Service to qualify for this deduction.
College savings plans
If you’re using a savings plan to save for college, then your plan may offer additional tax benefits:
- 529 plan contributions are not deductible on your federal tax return, but earnings and distributions from the money you save in a 529 plan are tax-free, so long as you use the funds for qualified higher education expenses.
- Coverdell Education Savings Account contributions are not tax-deductible, either. But you can grow your Coverdell savings tax-free if you contribute no more than $2,000 per student each year. You can also make tax-free distributions if the amount you withdraw doesn’t exceed your qualified education expenses.
This article was written by www.militaryonesource.mil not HelpVet. View original article here.