For those considering a degree in their line of work but fearing high tuition costs, the Internal Revenue Code might have a solution.
The code and associated regulations include certain “educational expenses” as deductible business expenses. The types of education expenses that typically qualify result from MBAs and other master’s programs associated with a taxpayer-student’s line of work prior to pursuing the education program. Depending on specific education costs, this deduction can save thousands in taxes.
To qualify, a student must undertake the education to maintain or improve skills in an established trade or business. The education must not satisfy a minimum requirement for the student’s business nor qualify the student for a new business. The student must remain established in the business while pursuing the education; however, temporary unemployment while in school will not necessarily result in disallowance of the education expenses. A student can remain established in a business while temporarily out of work. To determine if your specific educational expense qualifies for deduction, seek the assistance of trusted tax professionals.
Beyond business expense deductions, students in every discipline are entitled to certain tax credits associated with their education.
The American Opportunity Tax Credit is available for the first four years of higher education and is worth up to $2,500 per year. To qualify, a student must be enrolled at least half-time, not have a felony drug conviction at the end of the tax year and have an adjusted gross income less than $90,000.
The other credit is the Lifetime Learning Credit. Available to all students, this credit is worth up to $2,000 per year as a dollar-for-dollar decrease of tax liability. To qualify, a student must be enrolled at least half-time at an eligible institution, take courses directed at a degree or other qualifying credential and have an adjusted gross income less than $62,000.
Additionally, these credits are available to taxpayers who have dependents that satisfy the requirements.
To determine if you qualify for these credits, or if you would like more information on how you can maximize your tax savings, seek the assistance of a trusted tax professional.
Austin Frates is a student at the University of Idaho College of Law Low Income Taxpayer Clinic in Boise. firstname.lastname@example.org. This column is part of the Jan. 20-Feb. 16, 2016 edition of the Idaho Statesman’s Business Insider magazine.