{"id":8909,"date":"2023-05-15T10:44:02","date_gmt":"2023-05-15T14:44:02","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/how-the-tax-code-can-help-you-pay-for-your-mba-and-your-kids-college-education\/"},"modified":"2023-05-15T10:44:03","modified_gmt":"2023-05-15T14:44:03","slug":"how-the-tax-code-can-help-you-pay-for-your-mba-and-your-kids-college-education","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=8909","title":{"rendered":"How The Tax Code Can Help You Pay For Your MBA And Your Kid\u2019s College Education"},"content":{"rendered":"
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When it comes to education, most financial planning is centered around ways to save and invest for college. This makes sense because in an ideal world, we’d all be able to cover all our education expenses that way and not need to borrow a dime. But in the real world, that’s rarely the case. Fortunately, there are parts of the tax code that can help lift some of that burden if you know how to use them. Let’s take a look at some of these tax breaks and how you might be able to qualify for them.<\/p>\n

Business Deduction For Work-Related Education<\/strong><\/p>\n

If you’ve recently gone back to school to improve your skills for your current job, this may be the most lucrative tax break because you can potentially deduct the entire cost of tuition, required books and other materials from your taxable income. If those costs add up to $30k and you’re in the 24% tax bracket, that could save you $7,200 in taxes. That\u2019s like getting a 24% discount on the cost of the education!<\/p>\n

As you may have suspected, there’s a catch. In fact, there are several. First, this deduction is tough to qualify for. The first way to qualify is if the education is required by your employer or the law to keep your current status, salary, or job and it must serve a bona fide business purpose for your employer. The second way to qualify is if the education maintains or improves skills in the line of work you had before starting the program.<\/p>\n

However, in either case, it cannot be required to meet the minimum educational standards for your profession. That means your law or medical degree won’t qualify if you’re a lawyer or a doctor. In addition, if it qualifies you for a new trade or profession, it doesn’t count either. If you’re a manager and you go to business school to enhance your management skills, you may be eligible, but if you were working in accounting and went to business school to move into management, you’re out of luck.<\/p>\n

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As you can see, you really have to thread the needle with this one. Your best bet is to get a letter from your employer stating that your education met either set of requirements without violating anything that would disqualify you. You may also want to consult with a tax professional because taking a large deduction that you don’t qualify for can mean that much bigger of a penalty.<\/p>\n

Finally, if you do manage to jump through all the hoops, it’s an itemized deduction that can only be deducted from your income to the extent that it (plus some other job expenses and other miscellaneous deductions) exceeds 2% of your adjusted gross income (AGI). For example, if your AGI is $100k, you can only deduct expenses over the first 2% of $100k, or $2k. Given the size of today’s tuition bills, this shouldn’t be too much of a problem for many people though.<\/p>\n

The American Opportunity Credit<\/strong><\/p>\n

Since it’s a credit, you can deduct this one right off your taxes up to $2,500 (100% of the first $2k of eligible expenses and 25% of the next $2k) per student (you, your spouse or a dependent) for up to 4 years of undergraduate tuition and required fees and materials, including books. However, the amount of the credit begins to phase out once your modified AGI goes above $80k or $160k for a joint return. On the other hand, 40% of it is refundable for people who don’t earn enough to owe income taxes.<\/p>\n

The Lifetime Learning Credit<\/strong><\/p>\n

This credit is similar to the American Opportunity Credit but it’s a little smaller\u2014up to $2k\u2014and that amount also begins to phase out when MAGI exceeds $80k or $160k for a couple. It’s also nonrefundable. However, it’s more flexible since it’s not limited to undergraduate education and thus can be used for graduate programs or just a few courses. Both credits can’t be taken for the same student in the same year though.<\/p>\n

No Double Dipping<\/strong><\/p>\n

It’s important to point out that you can’t use any of these tax breaks for expenses that have already been covered by another one of these tax breaks, a tax-free account like a 529 plan or Coverdell account, or other forms of tax-free educational assistance like Pell grants and veterans’ programs. In other words, there’s no double dipping allowed. (This restriction doesn’t apply to funding sources that are generally tax-free like loans or inheritances and gifts.) The trick here is to withdraw from 529 and Coverdell accounts no more than the amount of qualified expenses that aren\u2019t covered by one of these tax breaks.<\/p>\n

Student Loan Interest Deduction<\/strong><\/p>\n

The tax benefits don’t necessarily stop with the tuition bills. If you’re not a dependent on someone’s tax return and are within the MAGI limits, you can deduct (without having to itemize) up to $2,500 of interest each year on student loans that you’re legally obligated to pay. That last part means you can’t deduct interest for loans in your children’s name even if you make the payments.<\/p>\n

Education is expensive and costs are rising faster than inflation. The good news is that we can offset some of that cost by reducing our taxes. The bad news is that these breaks can be complex so unless you have a good tax preparer, you’ll have to take some time to understand them and that can be an education in itself. Why isn’t there a special tax break for that?<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

When it comes to education, most financial planning is centered around ways to save and invest for college. This makes sense because in an ideal world, we’d all be able to cover all our education expenses that way and not need to borrow a dime. But in the real world, that’s rarely the case. Fortunately, […]<\/p>\n","protected":false},"author":1,"featured_media":8910,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-8909","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-featured"],"yoast_head":"\nHow The Tax Code Can Help You Pay For Your MBA And Your Kid\u2019s College Education | iFintechWorld<\/title>\n<meta name=\"description\" content=\"When it comes to education, most financial planning is centered around ways to save and invest for college. 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