Tax Tips for Students

I am really enjoying pursuing a master’s degree in counseling, however I don’t enjoy the loans that have to be taken out to pay for higher education. However, if I’m going to have to pay so much for education, the best thing to do is see how to minimize the cost of that education.

One way to reduce the cost of an education is through secondary means of taking advantage of education tax deductions and credits. First, the more popular education tax credits. The IRS makes available the Hope and Lifelong Learning Education Credits through form 8863. The Hope Credit can be taken for the first two years of higher education, gaining a credit of up to $1,650 per student. After those two years, the same form can be used for the Lifetime Learning Credit - which can also be used throughout graduate school. This credit is for up to 20% of the qualified educational expenses (maximum credit of $2,000 per student).

An alternative to the Education Credits is the Tuition and Fees Deduction which is submitted through form 8917. If eligible, this option makes it possible for an individual to gain an above the line deduction of up to $4,000.

One catch is that of the above three option (Hope Credit, Lifetime Learning Credit, Tuition and Fees Deduction), only one can be applied to each student. However, if you have multiple college students in your family a different option can be applied to each student. Since Stacey and I both had graduate classes in 2007, we will be able to take a Lifetime Learning Credit for Stacey’s classes, and a Tuition and Fees Deduction from my classes.

A final method of minimizing the cost of education through a tax advantage is available through the student loan interest deduction. This is also an above the line deduction, allowing you to deduct all the interest that was paid on qualified student loans before your adjusted gross income is computed. This deduction is taken as a line item, line 33 on form 1040, instructions can be found on page 30 of the form 1040 instruction manual.

Higher education is an investment. However, hopefully if you are making this investment you are also taking advantage of these tax tips to make the investment as small as possible! If you know of any more tax incentives for those in higher education, post comments!

WYTI Links: 09.28.2007

Just another dial-up week :) [But we're still extremely thankful for the internet we do have]

• Do Student Loans Affect a Mortgage Application? (via Kiplinger Personal Finance)

• Top High-Yield Savings Accounts: Interest Rates & Some Thoughts (via Money, Matter, and More Musings)

• 6 Places Where Precision Matters (via Dumb Little Man)

• Simple Tips to Organizing Your Vital Information - Are You Prepared? (via My Estate Planning Career Blog)

• Is the Value Menu Really a Value? Comparing the Homemade Double Cheeseburger to The McDonald's $1 Version (via The Simple Dollar) This is a classic post. The post itself is intriguing. I think Trent conducted his "experiment" pretty fairly and thoroughly...and in my opinion, the health factor trumps price anyway. It's also amazing to read the comments and see how many people almost seem "offended" that even the cheapest thing on a fast food menu isn't that great of a financial deal. I guess we're still not ready to accept that something we've been told is a good deal is not really as good as it is presented. BTW, advertising is the only difference between Mickey D's and Trent's experiment. Equipment is a moot point (because homes already have cooking equipment and McDonald's billions served have more than paid for their burger presser). My guess is that they're still making dough off that $1 Double Cheeseburger (and an even greater % on those fries and drink). James, you have anything to add from behind the scenes we might not be aware of?

Have a great weekend...