FEDERAL TAX INFORMATION
The Taxpayer Relief Act of 1997 created several new tax benefits for families to assist with college expenses. A few of the benefits include student loan interest deductions, the American Opportunity and Lifetime Learning Credits. To determine your eligibility for any of these benefits, you should consult a qualified tax adviser or the Internal Revenue Service (IRS) at www.irs.gov or 800.829.1040.
Student Loan Interest Deduction - A student may be able to reduce taxable income by up to $2,500 for interest paid during the tax year on student loans. Deductible interest includes loan origination fees, capitalized interest and voluntary interest payments on loans taken out solely to pay qualified education expenses for a student enrolled at least half time. Students can claim this deduction even if they don't itemize deductions. Lending institutions mail the federal form 1098E to borrowers, which provides the total amount of interest paid while in repayment during the tax year.
IRS Form 1098T will be available to you from Doane University by January 31st, and is a record of tuition and fees billed during the calendar year. Use Form 1098T to determine which of the following applies to your situation:
American Opportunity Credit - Tax credit for qualified tuition and fees paid in the first four years of post-secondary education to an eligible educational institution. Credit may be up to $2,500 per eligible student and 40% of credit may be refundable.
Lifetime Learning Credit - Non-refundable tax credit for qualified tuition expenses paid to an eligible educational institution.
Tuition and Fees Deduction - The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if you cannot take either the American Opportunity or Lifetime Learning Credit because your income is too high.
Savings options:
- Coverdell Education Savings Account (formerly called Education IRAs) - Contributions are allowed up to $2,000 annually on behalf of a designated beneficiary who is younger than 18 to pay qualified education expenses. Although these contributions are not tax deductible, they will grow tax free until withdrawn. Consult with an investment professional for your options.
- 529 College Savings Plans - These state- sponsored plans permit you to prepay or invest to pay higher education expenses. See www.planforcollegenow.com for more information about the College Savings Plan of Nebraska.
More information is available:
IRS Publication 970 "Tax Benefits for Education"- an informational overview of these higher education tax incentives- can be found at: www.irs.gov/publications/p970/index.html.
For additional financial options, you are encouraged to visit with your financial planner or tax accountant.