As tax time comes nearer, we are reminded of the famous saying, “Nothing is certain but death and taxes. Of the two, taxes happen annually.” And while April 15th might induce night terrors and a cold sweat for the majority of Americans, congress has set up a system where taxes can be less of a burden for past, current, and future students. The idea is that the more educated you are, the more money you’ll make and the higher taxes you’ll pay in the future.

Take advantage of this unique opportunity to learn about the numerous government-sponsored education tax breaks.




Coverdell Education Savings Accounts

Once known as education IRAs, Coverdell Education Savings Accounts actually have nothing to do with retirement. While you are not allowed to deduct the money you deposit into this account, all the earnings are tax-free with the caveat that they are used to pay for education costs (anything from elementary to college tuition). Coverdell Education Savings Accounts can also be used for teachers to purchase in-class supplies such as educational software. Up to $2,000 can be contributed to a beneficiary’s account per year.

Employer-Paid Education

Up to $5,250 of a non-job related education, paid for by your employer is considered a tax-free fringe benefit. If your schooling is job-related, than it does not count against your $5,250 cap.

HOPE Credit

The HOPE Tax Credit is designed for parents who are paying college tuition for their child who is in his or her first or second year of college. The maximum credit is $1,650 per child. The HOPE Credit phases out once adjusted gross income exceeds $57,000 for singles and $114,000 for married couples filing jointly.

IRA Withdrawals for Education

Anyone under the age of 59 ½ can avoid the 10% penalty on IRA distributions if that money is used to pay for higher education expenses. This tax break can also be used on a spouse or a dependant.

Job-Related Education

Need further education to maintain or improve skills related to your current work? If so, the money you spend should be tax deductible as long as you itemize. One exception is that if the education is for a new trade, then the tax break does not apply.

Lifetime Learning Credit

Where the HOPE Credit leaves off, the Lifetime Learning Credit picks up. Much like the HOPE Credit, the Lifetime Learning Credit is for parents who have children in junior, senior, or graduate-level classes. Parents can receive 20% of the first $10,000 of tuition with the max being $2,000 per tax return (sorry USC students). Also like the HOPE Credit, this tax break phases out once modified adjusted gross income exceeds $57,000 for singles and $114,000 for married couples filing jointly.

Roth IRA

Roth IRAs can be a parent’s saving grace when it comes to paying college tuition. Roth IRA money can be withdrawn penalty free if used to pay college bills.

Scholarships

In the majority of cases, scholarships are tax-free. If you’re in need of a scholarship, check out new scholarships we recently added to our database.

529 Savings Plans

The majority of states offer state-college savings plans that allow students and parents to save money tax free to pay for in-state tuition.

Student Loan Interest

Do you take out student loans to help pay for school? If so, you can deduct up to $2,500 of the student loan interest assuming you aren’t listed as a dependent on anyone’s tax return. The best part is, you don’t even have to itemize to receive this tax break.

Tuition Deduction

If you don’t qualify for the HOPE or Lifetime Learning credits because your income is too high, you can still deduct up to $4,000 of college tuition expenses. The deductible amount phases out at higher income levels starting at $65,000 for singles and $130,000 if married filing jointly.