A limited deduction is allowed for "qualified higher education expenses" -- tuition and related expenses under the same definition as for tuition credits, above. A $4,000 above the line deduction (Form 8917) is allowed for qualified tuition expenses in 2012. Deduction up to $4,000 is allowed on if taxpayer's (modified) adjusted gross income is $65,000 or less ($130,000 or less on a joint return). If taxpayer's modified adjusted gross income is more than $65,000 but not more than $80,000 (more than $130,000 but not more than $160,000 on a joint return), deduction is allowed up to $2,000. The tax deduction reduces your amount of income, reducing amount of tax you pay. You do not need to itemize deductions on Schedule A (Form 1040) in order to take this deduction, which benefits higher earners who cannot take the Lifetime Learning Credit because
their income exceeds the limits.
Business expense deduction is allowed, without dollar limit, for education that serves the taxpayer's business, including employment. Deduction is also allowed for student loan interest, but a taxpayer may not take more than one deduction for the same item. In addition, you cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return.
"Qualified higher education expenses" must be reduced by any such expense paid with an amount treated as tax-free under the rules for excluding income from Series EE bonds, or Section 529 or 530 programs.
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Until next week, Happy Financial Planning
~Gary M. DellaPosta, CPA
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