What Educational Expenses are Tax Deductible in 2012?

Current tax laws are structured to make it possible for anyone to enjoy the benefits of higher education by deducting several expenses from their yearly income tax bill. Before beginning a school year, a person will need to become familiar with the expenses that are deductible and which ones will need to be paid in full. While a person cannot claim these expenses if they are listed on the tax return of someone else as a dependent, receipts and documentation should still be collected so that the parents or legal guardians can use the deductions on their filings.

Tuition for any institution of higher learning is considered to be deductible, but there are some restrictions. Courses that are based on sports, hobbies, or games are not allowed to be deducted unless they are directly related to the student’s degree program. In addition, only books and supplies that are purchased directly from the college or university qualify for a deduction. Others that have been bought elsewhere cannot be listed as deductible expenses. Also, a student that lives on-campus cannot declare the price of their room and board on their tax return. Indirect expenses like transportation are also exempt from the deductible expenses.

After counting the money that has been spent on relevant educational expenses, a student must also consider any grants or scholarships that were received. In many cases, this form of income does not cover the total amount of the tuition and a person can declare the difference. A prime example would be a tuition reimbursement plan that only pays $2,000 while the cost of tuition is $3,000. The remaining $1,000 would be a deductible expense that can be declared.

The amount of educational expenses that can be deducted from a single year’s tax return vary depending on the person’s income level. If the person earns more than $80,000 for a single filer or $165,000 for joint filing, they are not allowed to use any of the educational deductions. For incomes between $65,001 and $80,000 ($130,001 and $16,000 for married), the maximum amount that can be deducted is $2,000. For anyone earning less than this amount, the ceiling for educational deductions is $4,000. The income totals are defined as the MAGI, or Modified Adjusted Gross Income.

Deducting educational expenses can be very tricky and a student will need to make sure that they have documented proof of the expenses to avoid an audit. One option that many students choose when it is time to do their yearly income tax return is to go to a tax professional. As well as knowing which deductions can be used, a tax professional will also be up to date on all of the latest tax credits that are designed for education, such as the American Opportunity or Lifetime Learning deductions. As these credits and deductions often change from year to year, a tax professional will know how to apply them to the tax return correctly to ensure that the student does not pay more than necessary for their taxes.

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