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How to max out education-related tax breaks

Published on 2/25/2016
Writtin by: Paul Bogdanoff, CPA, Stacia Getz

Tax season is in full swing at Bogdanoff Dages and Co., P. C. and we are working with our clients to maximize the education opportunities that are available in the tax code. If there was a college student in your family last year, you may be eligible for some valuable tax breaks on your 2015 return. To max out your education-related breaks, you need to see which ones you’re eligible for and then claim the one(s) that will provide the greatest benefit. In most cases you can take only one break per student and for some breaks, only one per tax return.

Credits vs. deductions

Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. A couple of credits are available for higher education expenses:

  1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
  2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.


But income-based phase outs apply to these credits. For joint filers $160,000 of adjusted gross income is the beginning of the phase out for the American Opportunity credit and $80,000 for single or head of household filers. The income phase outs begin at $110,000 for the Lifetime Learning credit for joint returns and $55,000 for single or head of household returns. If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, the Lifetime Learning credit isn’t necessarily the best alternative. Neither credit is available for married filing separately.

Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction.

How much can your family save?

Keep in mind that, if you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2015 tax returns — and which will provide the greatest tax savings — please feel free to contact your Bogdanoff Dages and Co., P. C. tax team. Our goal is to understand an individual’s position in order to uncover every tax break that applies to their return in hope to result in tax savings and a positive business relationship moving forward.