|
|
TAX BENEFITSEducation costs keep steadily rising. Fortunately, the federal government offers several tax breaks for students and their parents. Follow these links to learn more, and be sure to consult your tax advisor to determine whether you may take advantage of any of these incentives. 529 Plans 529 PlansSection 529 Plans are savings programs that permit taxpayers to make contributions on behalf of a beneficiary. The account earnings are untaxed until withdrawn for the beneficiary's qualified school education expenses at which time they are taxable to the beneficiary. Ready to open a 529 Plan? Follow this link to learn more about Wachovia’s CollegeSense® 529 Higher Education Plans. HOPE and Lifetime Learning Tax CreditsThese programs reduce the amount of your federal taxes based on qualifying "out-of-pocket" educational expenses paid for yourself, your spouse or your dependent child. Qualifying "out-of-pocket" expenses include tuition and fees less any grants and scholarships received. It does not include room, board, books, and transportation. Only one taxpayer (either the student or the parent) may claim this tax credit. Also, only one of these tax credits may be claimed per tax year. HOPE Tax Credit: With this credit, you can claim a tax credit of up to $1,650 for each qualifying family member who is attending an eligible school. That amount represents 100% of the first $1,000 of your out-of-pocket educational expenses for each student, plus 50% of the next $1,000. The student must be in the first or second year of a degree or certificate-granting program and must be attending at least half time. Lifetime Learning Tax Credit: With this credit, you can claim a maximum credit of up to $2,000 (20% of the first 10,000). This credit is calculated per family, not per student. Coverdell Education Savings AccountThe Coverdell Education Savings Account allows you to save money for future educational expenses. A Coverdell Account can be established for anyone who is less than 18 years of age or is a special needs beneficiary. Contributions are not tax deductible, but the funds grow tax free. Distributions used for qualified educational expenses are not subject to tax and are excluded from income as long as they are not greater than educational expenses in a given year. The annual contribution limit is $2,000 per designated beneficiary. Definition of qualifying educational expenses includes elementary and secondary school costs as well as some room and board, uniform, computer, and extended day program expenses. Annual income limit on those who can fund a Coverdell Account is $110,000 for single filers, $220,000 for joint filers. Education Loan Interest DeductionYou can deduct up to $2,500 in interest payments on one or more qualifying education loans. Interest paid while a loan is not in repayment (such as forbearance or deferment) is also deductible. The deduction is an adjustment to income; you can claim it even if you don't itemize tax deductions. You can't claim the deduction if your parents claim you as a dependent on their taxes. Eligibility is phased out for unmarried taxpayers with annual gross income of $50,000 to $65,000 (and $100,000 to $130,000 for joint filers). More ResourcesFor more information on these incentives under the Taxpayer Relief Act of 1997 or the Economic Growth and Tax Relief Reconciliation Act of 2001: Internal Revenue Service Department of Education
Personal Finance Login
Apply Now
Related Products and Services
Personal Finance Personal Finance FAQs Site Map Glossary Search |