Free Websites at Nation2.com

 



Total Visits: 658
Home

Federal Income Tax and the College Deduction

As high school seniors begin to prepare for submission of college applications, and parents begin to search for financial tools to support the cost of the education, one area of focus will lie in the tax advantages and tax deductions associated with college expenses. However, with several tax deductions options, many parents, and students, find they are confused as to which deduction to select and what, if any, deductions would qualify. The following provides an overview of the federal tax deductions which are application to college associated expenses.

Tuition and Fees Deduction:

For tax year 2005 and beyond, the Internal Revenue Service will allow individuals to tax a direct deduction for payment of tuition and fees up to $4,000 in payments. As a general rule, this deduction is used only when the student, or parent, does not qualify for the Hope Credit or the Lifetime Learning Credit.

Hope Credit:

Allows for a deduction of 100% of the first $1,000 in college tuition and fee expenses and then 50 percent of the next $1,000.00. The advantage to this deduction lies in the benefit to deduct expenses during the first two years to the student's education. Unfortunately, the tax deduction is only permitted for two tax years for the same one student and the student must not be guilty of any felony convictions associated with controlled or illegal substances.

Lifetime Learning Credit:

Considered the most flexible credit, the Lifetime Learning Credit can be used at any point of the student's college education provided the classes are intended to obtain a degree or improve a work related skill or knowledge base. While the amount of deduction will vary with the adjusted gross income, the Lifetime Learning Credit can be used for anyone of any age, even for a student who is married provided the income tax return is filed as a joint return.

Student Loan Interest:

For individuals who are in repayment of student loans, the IRS will allow for deduction of up to $2,500.00 in interest from the federal income tax return. The amount to be deducted will depend on the amount the taxpayer actually paid in interest and based on the adjusted gross income. For some taxpayers, this deduction is negated by a significant income level.

As with any financial or income tax decision, consulting a tax advisor will provide for the optimal outcome. For more information regarding federal income tax deductions, as it applies to education and student loan expenses, visit the Internal Revenue's website at www.irs.gov.Buy Research Paper Online