How to Garner Tax Benefits From Your Education Spending

Everybody has to file their income tax returns. Some turn to a professional accountant to do their taxes. Others take the do-it-yourself approach and use software specifically designed for tax preparation. Finally, there are those who fill out the correct form that the government provides. Though there are several different methods of filling out tax forms, one thing remains important: knowledge about tax deductions. You must be aware of what deductions are legally available to you in order to save your hard earned income.

The majority of those filing tax returns will claim exemptions, which the IRS states amounted to more than $842 billion in 2005, the highest amount on record. Yet, a number of legal tax credits are often missed or neglected by filers who could have benefitted from them.

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It may be possible, if your income falls within certain stated guidelines, to use education-related expenses as a credit against your tax liability. Available options include the Lifetime Learning credit, which permits you to receive a tax credit for the amount of your tuition, and the Hope credit. You can make your education more affordable if you'll devote some study time to possible tax alternatives.

Considering the amount of people who were qualified for the Hope or Lifetime Learning subsidy as much as 25% did not take the benefit of it; based on a Government report that came out in 2005 which consisted of information from approximately 1.4 million tax returns. On a separate basis this was just about $160 for each person, but several of those exact people paid an estimate of $500 in extra taxes.

Depending on your level of income, the Hope credit may be able to secure funds to pay for all or part of your college tuition. You are able to get up to $1,650 for tuition or tuition related expenses, excluding books, other supplies or housing. If your college is on the list of approved colleges, Lifetime Learning may assist you with up to $2,000 towards the cost of going to school. Again, this is dependent on your income. If you make more than a certain amount, you will not qualify, but the limits are generous and based on your adjusted, modified gross income. If you are single and earning more than $47,000 or married (filing jointly) and your combined income is $94,000 or more, you may still be able to secure some funds, but not the full amount. You will not receive any funding if you are single and earning $57,000 or married and earning $114,000 or more.

You do not have to itemize to take advantage of the deduction for tuition and education related fees which can be worth as much as $4000 to you. Your MAGI, if you are single, $65,000 or less (married-filing-jointly is double that or $130,000). You can still take advantage of as much as a $2000 in tax deductions if you income, as a single person, is between $65,000 and not more than $80,000 (again it will be twice those amounts if you are married-filing-jointly). If your income is any higher than these figures you are not going to be eligible for college tax deductions.

There isn't anything that is easy about credits and deductions and this is not different from the average rule. You can't have both benefits of the credit and deduct the cost of tuition at the same time. It will be worth the effort to investigate to find out which one will give you more money, but credits will usually give you more back than deductions will. Make sure you search since there are choices such as phase-outs that can apply to you.