For full-time students attending graduate school, tuition and costs are exorbitantly high. It’s often difficult to maintain studies and still work to help defer some of the costs. For those who have not yet entered the professional workplace, is it possible to obtain any tax benefits for graduate school expenses? Is tuition for law or graduate school a deductible educational expense?
If enrolled in an eligible graduate school and pursuing a master’s degree, a student may be able to receive a tax credit of up to $2,000 for qualified educational expenses, which is equal to 20% of up to $10,000 of the student’s qualified educational expenses. Qualified educational expenses include tuition, books, supplies and equipment that are included in the cost of tuition and required to be purchased directly from the graduate school. There are no limits to the number of years that a student may apply for this tax credit.
For example, Derwood is a junior in a university degree program in dentistry. In addition to tuition, he is required to pay a fee to the school for the rental of dental equipment which is necessary for his program. Because the equipment rental fee must be paid to the school for enrollment and attendance, the equipment rental fee is a qualified education expense that Derwood may claim on his return.
A tax credit is not a refund but applied to the tax that is due, i.e., it decreases the final amount of money owed to the IRS after all appropriate deductions are taken. However, if no tax is owed to the IRS, it may be realized as a refund.
If a student is still a dependent, his or her parents may take out a Lifetime Learning Credit, even if the money was paid out-of-pocket of the student. Of course, children may not claim a Lifetime Learning Credit if parents claim them as a dependent. This also applies to married students who do not file a joint return.
Graduate students who pay more than $600 interest on student loans are eligible to receive a tax deduction of up to $2,500 per year as long as they have Modified Adjusted Gross Income (MAGI) less than $75,000 and are attending graduate school at least half-time.
The Tuition and Fees Deduction allows students to claim up to $4,000 per tax year for graduate students with a MAGI of $65,000 or less. If MAGI is between $65,000 and $80,000, then students may claim up to a $2,000 tax deduction. Graduate students or their parents may claim the Tuition and Fees Deduction. However, students may not claim this deduction if married and not filing jointly with their spouse. Similar to the Lifetime Learning Credit, this deduction is available only for tuition and related expenses required by a graduate school. Both full-time and part-time student may use this deduction.
If you are currently enrolled in college and have questions about education credits and deductions, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
