You can save as much as $2,500 per student, but how much you claim depends on your income, the student’s educational status and how and when you paid the bill.
If you’re paying for a college education, you may need an advanced degree to figure out how to claim federal tax breaks for those expenses.
Congress in recent years has approved myriad special credits, deductions and other tax breaks for people paying tuition bills and related costs, and new breaks and twists were added in the recent stimulus bill.
The tax breaks can be generous, saving you as much as $2,500 per student. But how much you can claim depends on your income, the student’s educational status and how and when you paid the bill.
“We call it complexification,” said Jackie Perlman, an analyst at H&R Block’s Tax Institute in Kansas City, Mo. “We hear people saying that they would like the tax law simplified, but simplifying means eliminating tax breaks. It’s really simple when there’s nothing to claim.”
There’s no worry of anything simple when it comes to college costs. Among the education-related breaks for 2008 are two tax credits, two deductions and at least two significant “income exclusions.” And for 2009 there’s a new and improved tax credit.
Tax credits provide a dollar-for-dollar reduction in the tax you owe. Deductions reduce the income that’s subject to tax. Income exclusions, like deductions, reduce the amount of income that’s subject to tax.