An overview of the various tax credits, deductions and other incentives available for pursuing post-secondary education…

The value of higher education to an individual’s career and standard of living is widely recognized. One of the best ways to increase the affordability of postsecondary education for you, your spouse or dependents is to take advantage of federal tax incentives. This article discusses the deductions and credits, as well as taxable income exclusions, which may be available to help offset education expenses.

Deductions and Credits
Several tax deductions and credits are available for educational expenses. Tax credits differ from deductions in that credits directly reduce the amount of income tax you may have to pay, while a deduction reduces the amount of income subject to tax. The IRS makes the following deductions and credits available for education benefits:

Exclusion of Scholarships and Other Receipts from Gross Income
Generally, scholarships, fellowships and other educational grants are excludible from gross income if they are received by an individual who is a candidate for a degree at a qualified educational institution and are not given in return for services provided by the student. A qualified educational institution is one that normally maintains a regular faculty and enrolled body of students.

Generally, you may claim any number of benefits as long as you use different expenses to figure each one. The portion of expenses paid with tax-free scholarships, fellowships, grants, education savings account funds, tax-free savings bond interest or employer-provided education assistance are not eligible for deductions or credits.

Education is expensive, but taking advantage of some of the federal and state tax incentives may help defray some of the costs. Care should be taken to ensure you choose the program that will benefit you most and that you meet all requirements to qualify for the particular benefit.

This material is provided for general information. You should discuss your specific tax situation with your tax advisor. iBi

Kristina Galligan, CPA is a senior tax accountant at Heinold Banwart, Ltd. She can be reached at (309) 694-4251 or [email protected]