Mark Huffman for Consumer Affairs writes: Now that the Internal Revenue Service (IRS) has turned on the “open” sign taxpayers may begin filing their returns. As you start to work on your taxes, don't overlook some very attractive deductions.
For example, if you or a dependent attended a college, university or other qualifying educational institution last year you may be able to deduct some of the costs, significantly lowering your tax liability.
Limitations
You may qualify if, at any time during 2013 you paid qualified education expenses for yourself, your spouse, or your dependents. There are some limitations. You cannot claim the deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education, such as tuition, fees and books – as long as they are required for attendance – and not living expenses.
There is also a limit on income. If you're an individual taxpayer whose Modified Adjusted Gross Income (MAGI) is more than $80,000 or a married taxpayer with a MAGI over $160,000, you are not eligible.
However, if you can qualify for this deduction you can reduce the amount of your income subject to tax by up to $4,000.
You don't have to itemize
The nice thing about this particular deduction is that it doesn't go on IRS form Schedule A (Form 1040), which is for itemized deductions. Unless you have a lot of deductions, it usually makes sense not to itemize but take the Standard Deduction, which is $6,100 for a single taxpayer in 2013.
Since the education deduction is actually an adjustment to income, you can claim this deduction even if you do not itemize deductions on Schedule A. This deduction may also be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits.
What expenses qualify
According to the IRS, the tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014.
For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. An academic period includes a semester, trimester, quarter, or other period of study, such as a summer school session, as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period.
If you have taken out loans to pay for school, you can claim a tuition and fees deduction for qualified education expenses you paid with the proceeds of the loan. Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account.
If a student withdraws from a class and receives a refund, that refund must be subtracted from the amount you are claiming as a deduction. However, if the qualified expenses are not refunded, you can still claim them, even though the student has withdrawn from the class.
Not all expenses qualify
Sorting out what qualifies for a deduction and what doesn't can be tricky. For example, you can't deduct the cost of insurance, medical expenses – including student health fees – room and board or transportation costs.
These costs are not eligible, even if the institution requires them as a condition of enrollment.
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