Getting an education is a very important asset to retrieve in the US and it is a very costly expenditure to bear, and even one would have to take a loan for such educational expenses.  The good news is that the federal tax code does allow such educational expenses as a tax deduction, or even as a tax credit, given certain circumstances.

First of all, if a person’s educational expenses is related for the continuation or even an improvement in his/her current career and/or current business trade, he/she could claim it has a business expense; for the employee it is an itemizeable deduction, subject to the 2% of one’s total income limitation, if he/she was NOT reimbursed for these expenses form his/her employer.  For the self-employed person, it is a direct deduction against the person’s gross self-employed business income.

If the educational expenses are for a new career or a new business trade, then it cannot be a business expense for the employer, or for the self-employed person, however, it could be used as a tax credit.  There are two types of tax credits.  The first one is the “America Opportunity Tax Credit”, which for the educational expenses for a freshperson, sophomore, junior, or senior years of college/university.  The maximum amount of this credit is $2,500 per person, of which partial portion (i.e. 40%) of it, is a refundable tax credit.

The second tax credit is the “Lifetime Learning Tax Credit”.  This tax credit offers 20% of educational expenses (up to $10,000) for any educational expenses for either any undergraduate or even graduate level.  However this tax credit, unlike the “America Opportunity Tax Credit”, does NOT have a refundable part.  Thusly, this tax credit simply eliminates any income tax liability that a person might have.

These two credits are only available for attending a recognizable college/university that I accredited, and that of course there are income limitations to these two tax credits.

So if you had major educational costs, or even thinking going back to school, to either improve in your current career and/or business trade, start in a brand new career and/or business trade, or even have children starting college/university, contact us, and we would be more than happy to see if any of these education deductions and/or credits would apply to you. Kayatax is a local accounting firm based in Irvine CA.