Tax Deductions for College Costs
It’s back to school time again. With the cost of a college education skyrocketing, it is putting a bigger and bigger financial burden not only on students attending colleges but also their parents. Both the student and the parents (or grandparents even) can obtain student loans to help pay for college.
According to CNN Money, the average student debt upon graduation in 2010 was $25,250 which has been increasing every year. Couple this with a 9.1% unemployment rate for recent college graduates, going to college is not such a sure thing anymore.
However, there is lots of help out there. For current college students there are several college credits you can take on your tax return. If you are married and your income is less than $180,000 (or $90,000 if you are single) you can take the American Opportunity College Credit to get a tax credit up to $2,500 per student you are claiming on your tax return.
You can also deduct student loan interest on the front of your return if you are married and your income is less than $150,000 (75,000 if you are single).
The best strategy is of course to plan ahead and start saving for college now. The greatest thing going in Indiana now is the Indiana College Choice 529 plan. You can contribute up to $5,000 a year and get a 20% credit on your Indiana taxes. The Indiana 529 plan has no commission fees, is transferable to different beneficiaries, and can be used to attend a college anywhere in the US. Even if your student is already in college, you can still open a 529 plan, contribute your current tuition costs into it, and then pay them straight back out to the college. Additionally, there are no income limits on this plan – so everyone can take advantage of it. To learn more about this plan you can go to www.collegechoicedirect.com.
If college still seems out of reach – scholarships still abound. Scholarships are tax free income. There are many web sites out there to help you search for scholarships. Many colleges and universities also provide scholarships to their current students. Look early and make sure your student knows the requirement so they can take advanatage of as many scholarships as possible.
Even though the cost of college might seem daunting, there are many ways to help defray the costs. Make sure you let your CPA know of any college costs or student loan interest you have paid so we can help you reap these benefits. If you have questions regarding any tax credits, please give SBS CPA Group a call at 260-338-0833.