Tuition is deductible more so now than ever. Students might be unaware that they can save thousands of dollars by paying attention to federal education tax credits and deductions.
‘As a student, I am excited about the potential benefits the changes offer to students.
Furthermore, it incentivizes spending, which could spur the economy, and promotes education, bettering our citizens,’ said the Nicholas Williams, president of UT’s accounting honor society Beta Alpha Psi.
With the economy in the shape it is currently in, every dollar counts.
And whether parents or students themselves are picking up the tab on tuition or interest loans, they should take advantage of the new tax savings.
According to the College Board, 8.5 million taxpayers recently benefited from federal education tax credits and deductions, saving approximately $6.5 billion.
In the article ‘Don’t Overpay for Your Higher Education by Overlooking Education Tax Credits and Deductions’, Sallie Mae (the nation’s leading program in saving and paying for college) recommends taxpayers in college investigate whether they are eligible to claim one of the following credits and deductions:
529 College Savings Plans are tax free when used to pay for qualified higher education expenses. Many states offer taxpayers deductions for contributions into their 529 plan accounts.
Account owners of tax-advantaged 529 college savings plans will be able to count the purchase of a computer for a college student as a qualified education expense in 2009. 529 college savings plans allow families to save money for higher education while earnings grow federally tax deferred and can be used to pay for the cost of college.
* American Opportunity Tax Credit (formerly known as the Hope Tax Credit) provides up to a $1,800 tax credit per eligible student. This credit, which grew by $150 from the previous year, may be claimed for college freshmen or sophomores.
A new law has been passed this year that says the American Opportunity Tax Credit will expand the American Opertunity credit from $1,800 to $2,500 and allow families to use the credit for up to four years of college instead of only the first two. For the first time, lower-income taxpayers who do not have a tax liability may also benefit.
Because the new credit will be partially refundable, some will qualify for a payment of up to $1,000. Families planning ahead for the 2009 tax year should be aware of changes like this made as part of the American Recovery and Reinvestment Act of 2009 economic stimulus package, making investments in higher education more affordable at tax time next year.
* The Lifetime Learning Tax Credit provides a tax credit of up to $2,000 per family for higher education expenses. Students in any year of college or graduate school or taking continuing education courses may be eligible.
* The Tuition and Fees Tax Deduction may reduce taxpayers’ taxable income by as much as $4,000 for tuition expenses and related fees.
However understanding income limits and restrictions on how education tax credits and deductions can be combined is important. Tuition and Fees Deduction cannot be combined with the Lifetime Learning Tax Credit, but the Student Loan Interest Deduction can be used in combination with any other education-related benefit.
* The Student Loan Interest Tax Deduction can exclude up to $2,500 from taxable income for eligible taxpayers who paid student loan interest during 2008.
Scholarships for room and board can also be taxable. According to standards used by the college to determine full-time status, payments for room and board can be qualified education expenses for college students who carry at least half the normal workload.
After looking into all the tax credits and deductions, students should gather the right supporting documents.
To calculate the Student Loan Interest Deduction, taxpayers need to obtain form 1098-E from their loan service. Anyone claiming one of the credits or the Tuition and Fees Deduction will need Form 1098-T from their college or university.
Students should pay close attention to these opportunities to save their money.
One state report found that Florida students combined are likely missing out on more than $24 million in free money for college.
Beta Alpha Psi offers free income tax assistance to senior citizens and people with lower incomes (under $42,000 a year).
‘Over the past few years, we have contributed hundreds of hours of free tax preparation services to the VITA sites throughout the Greater Tampa Bay Area,’ said Vice President of Beta Alpha Psi Andrew Argue.
‘It is a great for our members to use their skills to help as many people as possible. We are always trying to inform people that we can do their taxes’hellip; for free!’
Students can get free tax a preparation course at Hillsborough Community College, Beulah Baptist Church or at the John F. Germany Library.
Simple federal tax returns may be e-filed at no cost by using TurboTax Federal Free Edition. Members of Upromise, a free program that helps students and families save money for education expenses, can earn cash rewards when they purchase TurboTax.
‘Hopefully new tax benefits will continue to help UT’s student body to grow,’ said Williams. ‘Maybe students who wouldn’t have had the opportunity to go here otherwise can now afford to and we will see a whole new dynamic group of people.’
Anne Orban can be reached at aorban@ut.edu
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