How to Use College Tuition as a Tax Deduction. The IRS allows tax deductions if you pay the tuition covering work-related education. This deduction is provided as an itemized deduction for employees and a deduction to adjusted gross income for self-employed individuals. You also may be eligible to deduct interest for student loans, get Hope Education or Lifetime Learning credits or save tax-free for college with Section 529 or Coverdell ESA plans.
Maintain accurate records and documentation of all educational expenses throughout the course of the tax year, including tuition, books and required fees.
Establish a simple alphanumeric code for educational expenses and use it to code all related entries in your check register and credit card statements. For instance, you might write "Col-Exp" on any check you use to pay for schoolbooks.
Total your employee expenses for unreimbursed job-related college tuition and other job-related educational costs on line 4 of IRS Form 2106. Claim the deduction by filing Form 2106 with Schedule A and Form 1040.
Use Schedule C to deduct your business educational costs on line 27. claim the deduction by completing Schedule C and filing it with Form 1040.
Use the Student Loan Interest Deduction Worksheet in the Form 1040 or 1040A instructions. Claim the deduction by entering the allowable amount on line 33 of Form 1040 or line 18 of Form 1040A.
Complete Form 8863 to calculate a Hope Education or Lifetime Learning credit for your dependent students. Enter the credit on line 50 of Form 1040 or line 31 of Form 1040A. Student-dependent eligibility for these credits is limited to 2 years per student.
Two other education-related tax benefits that do not specifically allow deductions or credits for college tuition expenses are Qualified Tuition Programs (also known as Section 529 plans) and Coverdell Education Savings Accounts (ESAs). With each of these programs, the contributions that you make are not deductible. However, the funds in each account grow tax-free and distributions are not taxed if they are spent on qualifying educational expenses.
Don't give up hope if the amount of your educational deduction and other Schedule A deductions is not enough to justify itemizing (because it does not exceed your standard deduction). If your employer offers a tuition reimbursement benefit or is willing to establish one as an alternative to that raise you've been wanting, you can receive tuition reimbursements tax-free for work-related education.