Another school year is upon us. It can be quite stressful getting your kids prepared. From new clothes to textbooks to school supplies to arranging a carpool schedule, it’s always hectic when classes commence each fall. So, to help reduce your stress level and tax bill a bit, here are some back-to-school tax tips that can save you substantial money.
Be aware of the sales tax holidays for your state.
Nearly half of all U.S. states recognize a sales tax holiday that generally falls in August to coincide with back-to-school shopping. A tax holiday is when sales taxes are temporarily suspended from being levied on relevant purchases within a particular state. Tax-free items can include clothing, footwear, school supplies, computers, and tablets.
Check out our 2016 sales tax holiday guide to find out the best time to load up the kiddos into the car and hit the mall.
You may be able to claim the Child and Dependent Care Credit for after-school programs.
If your kids are under age 13, you may qualify to claim the Child and Dependent Care Credit on your income tax return. This tax credit can help cover the costs associated with after-school care for your children. The key to claiming the credit is that your kids must be involved in such a program so that you can either work or search for employment.
The Child and Dependent Care Credit can be claimed by all taxpayers other than married couples who file separate returns. It provides a maximum of 35 percent of qualifying childcare expenses, and this amount depends on the adjusted gross income of eligible taxpayers.
Explore tax credits for college students.
Is little Bobby finally flying out of your nest to attend college? While it’s often quite expensive to help your child earn a degree from a college, university, or technical school, there is some potential savings in store for many taxpayers. These two education tax credits can lead to big savings.
- American Opportunity Tax Credit: This IRS credit can be applied to the expenses incurred in the first 4 years during which a student attends an institution of higher education. The credit can be claimed on the income tax return of a parent with a dependent enrolled in school. It can also be claimed by the student. The current value of the American Opportunity Tax Credit is up to $2,500 per qualifying student. The full value of the credit may be claimed every year for up to 4 years. This tax credit may only be applied to qualifying education-related expenses incurred by a student in higher education. You cannot claim this credit if you are claiming any similar education tax credits.The AOTC may be applied to expenditures for course materials, school supplies, and other items that students need for their college coursework. The credit also covers student activity fees required for enrollment. As for income limitations, the AOTC is currently available to individuals whose modified adjusted gross income is up to $80,000 a year and $160,000 for joint filers. The credit is phased out for earners whose income exceeds these amounts. Plus, 40% of the credit is refundable.
- Lifetime Learning Credit: The Lifetime Learning Credit covers “qualified tuition and related expenses.” This typically includes most tuition and fees paid to a post-secondary school, but it excludes student activity and athletic fees, student insurance, and room and board costs.This education credit has a value of a 20% credit on the first $10,000 spent on higher education. So, the maximum value of this credit is $2,000 per household. The credit is only available on a per-taxpayer basis. Eligible students must be enrolled in a post-secondary school on at least a part-time basis. The credit is gradually phased out after a taxpayer’s modified adjusted gross income exceeds $54,000 and is entirely phased out when this amount exceeds $64,000. For joint filers, these limits are $108,000 and $128,000, respectively. Remember that the Lifetime Learning Credit and the Hope Credit cannot be claimed for one student in the same year.
Research education-related tax deductions.
There aren’t a whole lot of education tax deductions for parents and students, but there are two worth noting.
- Tuition and fees deduction: This IRS tax break can reduce the amount of your income subject to tax by up to $4,000. This write-off must be claimed as an adjustment to your income, which means you are allowed to claim it even if you don’t itemize your tax deductions. Your modified adjusted gross income must be less than $80,000 per year or $160,000 per year for joint filers to qualify.
- Student loan interest deduction: When claiming this write-off, you can deduct up to $2,500 of student loan interest that you pay within a given year. In terms of income limitations, your modified adjusted gross income cannot exceed $80,000 for individuals and $160,000 for joint filers.