Which Expenses Qualify for Special Tax Treatment?
The IRS website defines qualified higher education expenses as: Many schools or programs now require computers (perhaps even an iPad). If so, that expense would count as “equipment required for the enrollment or attendance of a student.” And note that for part-time students, room and board expenses are subject to a cap. In case of an audit, make sure to keep any list of required equipment that the school provides, and any requirements provided in the class syllabus. Of course, you’ll also want to keep receipts so you can show how much you paid for what.
Examples of Tax Breaks for Education Expenses
There are many types savings and investment accounts that allow you to grow funds tax-free, such as 529 plans and Roth IRAs, so long as distributions are used for qualified higher education expenses. Early IRA withdrawals (before age 59 1/2) used for QHEEs will be exempt from the 10% early-withdrawal penalty tax, although the amount withdrawn would still be subject to ordinary income taxes. Students who are working while in school may be able to exclude certain benefits from taxable income as well, thereby decreasing their tax liability overall.
Online Resources for Eligibility
One of the best go-to sources for information is the IRS Tax Benefits for Education Center, as it is up to them as to what is and what is not considered a qualified educational expense. The easy-to-use information center will provide additional information on such topics as:
Who can claim a tax credit for education expensesWhich tuition and fees are deductible (based on filing status)Whether or not student loan interest is deductible (based on Modified Adjusted Gross Income limits)Definition of a qualified student loanDefinition of qualified education expenses (tuition and fees, room and board, books, supplies, equipment, other expenses such as transportation)Determining how much room and board qualifiesDetermining whether work-related education can be claimed as a business deductionEducation required by employer or by legal stipulationsEducation to maintain or improve skills
