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Taxes - Head Matters


7. Education Tax Benefits

Because the government wants to encourage us to expand our knowledge and skills through education programs after high school, they’ve developed a few tax credits and deductions to help off-set the expense of higher education.

529 College Savings Account

529 plans are more than just savings accounts. These state-sponsored college savings plans were established by the federal government in Section 529 of the Internal Revenue Code to encourage families to save more for college. They offer unique state and federal tax benefits you can’t get from other ways to save, making them one of the best ways to save for college. See for more information.

If you are a Colorado resident and you invest through CollegeInvest, Colorado’s 529 College Savings Program, every dollar you contribute to your account can be deducted from your Colorado State taxable income. If you are a resident of another state, check with your state’s 529 plan provider to find out if you qualify for state income tax benefits. Your account will grow federal and state tax-free for the duration of your investment. If you use your account for qualified expenses, earnings are also exempt from federal and state taxes.

American Opportunity Credit
This new credit was introduced in the 2009 tax year. It expands the Hope Credit and provides a federal income tax credit of up to $2,500 per student, depending on your income and your higher education expenses. The American Opportunity tax credit is for the first four years of post-secondary education, the Hope credit was valid for just the first two years.  This credit offsets the cost of tuition, fees, textbooks, supplies, and equipment for higher education by reducing the amount of income tax you are liable for. If you do not owe any income tax, you may also be able to claim this tax credit. For traditional dependent students, this is generally a tax credit for parents.  In order to be eligible for this tax credit, you must have an adjusted gross income of $90.000 ($180,000 if filing a joint return) or less.  See for more information.

Lifetime Learning Credit 
The Lifetime Learning Credit provides a federal income tax credit of up to $2,000 per taxpayer for post-secondary tuition, text books, supplies and fees paid by the taxpayer during the tax year. The amount of this credit is limited to the amount of tax you owe. The tax credit may be received for an unlimited number of years.  Eligible tax payers must have an adjusted gross income of $60,000 ($120,000 of filing a joint return) or less.  See reference IRS form 8863.

Student Loan Interest Tax Deduction
Interest paid on student loans is tax deductible. This amount depends on the the interest paid under your student loans and your income. In order to be eligible, you must have an adjusted gross income of $75,000 ($150,000 if filing a joint return) or less. Your taxable income can be reduced up to $2,500.

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