URBANA - Paying for college is a big commitment. Because understanding tax breaks can help ease the financial burden, University of Illinois Extension has revised and expanded a website that can help. The 2013 version of Tax Breaks for Higher Education (http://urbanext.illinois.edu/taxbreaks) contains practical information about how parents and students can lower their income taxes.
“Each tax break is unique,” said Karen Chan, U of I Extension educator and author of the website. “There are different eligibility criteria, definitions of qualifying expenses, and types of education programs that are covered. This website provides the details people need to figure it all out,” she said.
Chan said the Highlights section on the website is a good place to start to learn the general features and requirements for eight permanent, federal tax breaks. The information is organized in stages: saving for post-secondary education; paying for expenses; and paying off debt.
“For those who are planning ahead and saving for future expenses, people should check out the Coverdell Education Savings Account, qualified tuition programs (commonly known as 529 Plans), and the savings bond interest deduction,” Chan said.
Parents and students who are currently paying for higher education expenses may be eligible for an American opportunity credit (previously called the Hope Scholarship Credit), the lifetime learning credit, employer-provided assistance, or penalty-free early distributions from IRAs.
“Most of today’s graduates leave school with sizeable student loans,” Chan said. “The interest payments on those loans may qualify them for the student loan interest deduction.”
Sweedler explained that some tax breaks can be used for many types of higher education classes, whereas others can only be used to pursue a degree. To qualify for many tax breaks, your income must be below certain limits, some of which change each year. Those kinds of details are spelled out in the section titled Eligibility and Limitations.
“If you’re worried about the tax records you’ll need and how to claim the tax breaks, the new section addressing Tax Forms and Reporting will guide you,” Chan said. “It lists the types of statements you should receive and tells you exactly where to report or claim a tax break.”