Deductions for Education Purpose under US Tax Laws

education deductionInternal Revenue Code provides deductions of an amount spent or used for education , This  deduction is specially beneficial if you are not  qualified for the American opportunity or lifetime learning credits. Education deduction is for basically three purposes as under following heads

  • Deduction for tuition & fees related to education
  • Interest on student loan
  • Work related education expense

Before I proceed , please note that deduction for education is totally different from education tax credit. While the deduction for education purpose reduces your taxable income, education tax credit reduced your final tax payments.

Tuition & fees related to education deduction

The tuition or fees related to education , that can satisfy the definition of qualified education expense , can be deducted while computing total income of a tax year . Important points to keep in mind about the deduction of tuition and fees related to education expense are

  1. The qualified expenses must be for higher education.
  2. The qualified education expenses on yourself, your spouse or your dependent can be deducted.
  3. If your filing status is married filing separately , then you can not claim education deduction
  4. If another person can claim an exemption for you as a dependent on his or her tax return, then also education deduction can not be claimed.
  5. You cannot claim the tuition and fees deduction as well as an education credit for the same expense.

You need to fill up Form 8917 and attach with Form 1040 or 1040EZ .

Student Loan Interest Education Deduction

If you pay interest ( required as well as voluntary ) on a qualified student loan and your modified adjusted gross income (MAGI) is less than $80,000 ( $ 160,000 for joint tax filing ) , then you can claim the interest on educational loan as deduction .Since, the student loan interest deduction is taken as an adjustment to income,you can claim this deduction even if you do not itemize deductions on Form 1040’s Schedule A.

Business Deduction for Work-Related Education

An  employee  who incurs  qualifying work-related education expense .  Following are important point to note  :

  • The education is required by your employer or the law to keep your present salary, status or job.
  • The required education must serve a bona fide business purpose of your employer.
  • The education maintains or improves skills needed in your present work.
  • The education expense is not incurred  to meet the minimum educational requirements of your present trade or business or
  • The education expense is not incurred part of a program of study that will qualify you for a new trade or business.

You can claim education deduction  which  will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of your adjusted gross income. Similarly , a self-employed person can  deduct  expenses for qualifying work-related education against self-employment income. Following are important points for claim of deduction of qualified work related education expense :

  • You must be working.
  • If you are an employee, you itemize your deductions on Schedule A (Form 1040 or 1040NR) .
  • If you are self employed , you file Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)
  • Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education, below.

Business deduction for work-related education expense can not be taken together with  the tuition and fees deduction for the same expense. Similarly ,you can not claim work-related education deduction along with  an education credit for the same expense.



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