With another tax season demanding your attention, be aware of any opportunities to claim the deductions to which you are entitled. And with this in mind, do not overlook the potential tax savings for those pursuing higher education.
If you are a student or parent with an eye toward maximizing your deductions, connect with Military OneSource MilTax free tax services to get everything you qualify for. MilTax consultants have extensive knowledge of tax benefits for military families and can help you identify tax incentives for education expenses and student loan payments.
There are three main sources of tax savings associated with college expenses: tax credits, tax deductions and savings plans benefits.
Free MilTax Services
MilTax’s tax preparation and e-filing software is available mid-January through mid-October. And MilTax consultants are available year-round to help with tax questions or extensions.
If you, your spouse or a dependent have expenses related to higher education, you may qualify for an education tax credit, which can reduce the amount of federal income tax you owe. Consider these two options:
- The American Opportunity Tax Credit allows you to claim an annual credit of up to $2,500 per student for qualified expenses paid during the first four years of college. Be sure you qualify before making a claim, however, or you may end up having to pay the money back with interest, along with other possible penalties.
- The Lifetime Learning Credit lets you claim a nonrefundable credit of up to $2,000 per year for undergraduate, graduate and professional students, for an unlimited number of years.
To be eligible to claim the AOTC or the LLC, the law requires a taxpayer (or a dependent) to have received Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign. If you have questions, call Military OneSource at 800-342-9647 to schedule an appointment and get answers from a MilTax consultant.
Higher education expenses can also help reduce your taxable income. Here are a few tax deductions that you may qualify for:
- A student loan interest deduction allows you to deduct up to $2,500 of the interest you’ve paid on qualified student loans. You won’t have to itemize your tax return to receive this deduction, and you may qualify for it if your modified adjusted gross income is less than $75,000 (or $155,000, if you file a joint return).
- You can also claim a business deduction for work-related education expenses if they are more than 2% of your adjusted gross income. A MilTax consultant can help you itemize your taxes and meet other requirements set by the IRS to allow you to qualify for this deduction.
College savings plans
If you have a savings plan for college, it may offer additional tax benefits.
- Under a 529 Plan, contributions are not deductible on your federal tax return, but earnings and distributions from the money you save are tax-free, as long as you use the funds for qualified higher education expenses.
- Coverdell Education Savings Account contributions are not tax-deductible, either. But you can grow your Coverdell savings tax-free if you contribute no more than $2,000 per student each year. You can also make tax-free distributions if the amount you withdraw doesn’t exceed your qualified education expenses.
Call Military OneSource at 800-342-9647 or live chat to schedule a free appointment with a MilTax consultant or a financial counselor. OCONUS/international? Click here for calling options. You can also visit the IRS Tax Benefits for Education Information Center or contact a qualified tax professional.