Be it a college education or professional courses needed for business or a job, learning is essential for your career. While the cost of education is on a rise, you can make the most of the deductions offered by the IRS to offset the hefty amounts you spend on learning.
Here are some educational expenses that can help you reduce your tax liability.
If you are an employee or a self-employed individual, you can claim a tax deduction for work-related education. The course or program you’re pursuing should meet the following criteria:
When you invest in a course to improve your existing skills and be better at your job, you’re eligible to take the benefit of an educational tax deduction. For example, if you’re a digital marketer and you take an advanced marketing course to add more value to your current role, you will be eligible for a deduction.
Sometimes you need to have a special kind of education to continue with a profession. If it’s mandated by law, then your educational expenses will be considered tax deductible by the IRS. For instance, California real estate agents have to take special classes between the license renewal periods, so they can claim a deduction.
The area of study you’re pursuing has to be related to your current role and industry. For example, you can be a copywriter and take an email marketing course to hone your skills. But if you’re a writer and you want to move into something like designing, and you take up a graphic design course, you cannot claim a deduction on educational expenses.
Besides classes or training, the following expenses are also eligible for deduction:
Interest paid on loans usually does not get a tax deduction from the IRS. However, there is a provision to get a deduction on student loan interest payments for people whose MAGI (modified gross adjusted income, or the total income before any deductions) is lower than $80,000 if filing solo, or $160,000, if filing jointly. The qualified MAGI is specified annually. Eligible taxpayers can get a deduction of up to $2500 for paying interest on a qualified education loan taken for themselves, their spouses, or a dependent.
Taxpayers can also take the benefits of the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) for qualified higher education expenses, and reduce their tax outgo. But remember, these are tax credits and not tax deductions. Between the two, LLC is a non-refundable credit, which means you cannot claim a refund if you don’t owe taxes.
If you paid for a student loan or other educational expenses and you think you might be qualified for the deductions, Accountants Now can help you out with your tax filing. Our experts will ensure you reap the maximum benefits of the available tax deductions and tax credits and simplify the entire process for you. For more details about our services, feel free to reach out to us.
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