Paying for college is a daunting task which millions of people, including small business owners, must prepare for. However, the IRS does provide different options for taxpayers to address education-related expenses.
All the relief which the government provides is very small, but every dollar counts when funding college. It is important to be aware of which option will be the most advantageous to take.
Tuition and Fees Deduction
A deduction from gross income up to $4,000 can be claimed for tuition and fees for higher education. To be eligible the taxpayer’s modified adjusted gross income cannot exceed $130,000 (married filing jointly). The deduction completely phases out if the modified adjusted gross income exceeds $160,000. Although this is a deduction (not a credit) it will lower a taxpayer’s income , which will in turn lower the tax liability.
Please note that not all practical expenses are eligible for the deduction. Items such as transportation, room and board, and student health fees do not make the cut. Only qualified tuition and college fees count. The deduction is claimed on Form 8917.
Lifetime Learning Credit
This credit is a better option than the tuition and fees deduction mentioned above. The maximum credit given is $2,000 per tax return. In order to qualify, the taxpayer’s modified adjusted gross income cannot exceed $102,000 (married filing jointly). The credit is completely phased out if modified adjusted gross income exceeds $122,000. Taxpayers are not eligible to claim both the deduction AND the credit.
John Schetelich A graduate of Seton Hall University with a degree in accounting, John Schetelich has been preparing income tax returns for small business owners for over 20 years.