Tax News and Information
With the kids going back to school it is important to review tax benefits available for
education related expenses:
College Expenses
There are several tax incentives available for education expenses. Generally credits and/or deductions are
available for yourself, your spouse, and your dependents. It is important to compare the
alternatives to maximize this tax benefit.
American Opportunity Credit
A new education credit (replacing the HOPE
credit) that provides a credit of up
to $2,500 per student for college
tuition, fees and books. Income limits
apply to this credit. Up to 40% of the
credit is refundable which means that if
you have no tax liability you can still
receive a refund of up to 40% of the credit.
- Available for only the first four years of post- secondary education.
- Only available for four tax years per student.
- Student must be pursuing an undergraduate degree or other recognized
educational credential.
- Student must be enrolled at least half time for at least one academic
period beginning during the year.
- Credit phased out when modified adjusted gross income exceeds $180,000 for married
filing joint ($90,000 for single or head of household).
- Eligible expenses include tuition and fees, and course related books, supplies and equipment.
Lifetime Learning Credit
This credit is equal to 20% of education expenses paid up to a
total of $2,000 per tax return. The credit is not refundable. Income
limits apply to this credit.
- Available for all years of post-secondary education and for courses
to acquire or improve job skills. Available for unlimited number
of years.
- Student does not need to be pursuing a degree
or other recognized educational credential.
- Credit phased out when modified adjusted gross income exceeds
$120,000 for married filing joint ($60,000 for single or head
of household).
- Lifetime Learning credit can not be claimed in the same year for the
same student that a American Opportunity Credit is claimed.
Above-the-line deduction for tuition and fees
A deduction of up to $4,000 is available for Qualified tuition
expenses. Income limitations apply.
- Credit phased out when modified adjusted gross income exceeds $130,000 for married filing joint
($65,000 for single or head of household).
- You don’t need to itemize for this deduction.
- Can’t be claimed if the American Opportunity or the Lifetime Learning Credit is claimed for the
same student in the same year.
Illinois Tax Incentives
Illinois allows a deduction of up to $10,000 per year ($20,000
if married and filing a joint return)
for funds contributed to the Illinois
Bright Start or Bright Directions 529
plans.
- The plans now offer low risk investments that allow for deduction of the contribution with
little investment risk. With Illinois tax rates now at 5%, this deduction is appealing even for
a temporary investment to pay for upcoming tuition.
High School and Elementary expenses
Illinois provides a credit of up to $500 for educational expenses
paid directly to an Illinois school.
The credit is 25% of the expenditure and total expenses must exceed
$250 to receive any credit.
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