One of the great benefits of going to school to gain a college education is that you can deduct many tuition expenses thru various programs created by Congress. The IRS affords taxpayers several tax credit programs, such as the newly enacted American Opportunity Program, the Hope Tax Credit or Lifetime Learning Tax Credits.
Eligible Tuition Expenses
There are several tuition expenses that are qualified deductable expenses. In order to qualify for the deductions, the taxpayer/student’s institution must be deemed eligible by the government. If so, then all tuition and registration fees paid to the college/university are deductible up to the annual limit. Related fees are deductible, if the university considers them mandatory, such as books, equipment and computers, and Student Activity Fees.
However, there are certain expenses that the IRS deems not qualified for deductions. These expenses include room and board, health fees, insurance costs, and transportation costs.
Deduction Rules
The above mentioned Tuition deductions, unfortunately, cannot be used in conjunction with the Hope or Lifetime Learning Tax Credits, or the American Opportunity Credit. The Hope credit can be claimed based on the same student's expenses for no more than 2 tax years. The American opportunity credit can be claimed for the same student for no more 4 tax years. If you’ve used the Hope Credit previously, those years will count against the 4 tax years of the American opportunity credit. However, there is no limit on the number of years for which you can claim a Lifetime Learning Credit based on the same student's expenses.
Under the Lifetime Learning Tax Credit, a student can claim a credit of up to $2,000 per year. Under the Hope credit, you can claim up to $1,800 for qualified education expenses paid. Finally, under the American Opportunity Credit, you can claim up to $2,500 for qualified education expenses paid.
Over Deducting Expenses and Consequences
Over-deducting expenses can result in severe financial penalties by the IRS, as well as a possible loss of the ability to claim these credits in the future. IRS penalties include repayment of tax based on amount claimed, as well as any fine associated with providing false information to the IRS. In addition, there is a possibility of criminal charges if it is found you have perjured yourself by providing false information on the tax return.
Assistance of a Tax Attorney
Before making large deductions on your tax return, it is wise to speak with an experienced tax attorney to ensure that you are making the legally allowable deductions. Because these deductions overlap and cannot be combined together, it is important to understand which deduction would be best for your situation. If you have been charged with an over-deduction, you should speak with a tax attorney to understand your rights and obligations under the law.
