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Taking Full Advantage of Valuable Higher Education Tax Benefits Could Mean Big Savings for Students and FamiliesPosted by SEP-SOLO-IRA-401k-ROTH on: 2007-02-26 14:51:14 in category:
Retirement Planning News [ Print | Permalink / 0 Comment(s) ] Taking Full Advantage of Valuable Higher Education Tax Benefits Could Mean Big Savings for Students and Families Tuition and fees deduction and 529 tax permanency give families more choices SAN DIEGO, Feb. 26 /PRNewswire-USNewswire/ -- There is good news for students and families filing taxes this year: the extension of the tuition and fees deduction and the tax permanency of 529 savings plans means greater opportunities to save at tax time. But knowing which credits and deductions to claim can be confusing. Students and families should be careful to take full advantage of the tax benefits available -- making the right choice could mean thousands of dollars in extra savings. The tuition and fees deduction is available this year to students and families who cannot claim the Hope Scholarship Credit or the Lifetime Learning Credit. It allows a deduction of up to $4,000 in tuition or qualified fees expense from taxable income. Families will also benefit from changes to the way 529 savings plans are treated for tax purposes. Qualified withdrawals of 529 assets are now permanently tax-free, removing the uncertainty of these tax-advantaged plans and providing continued benefits to families saving for college. "The tax breaks offered to students and their families serve as additional sources of financial aid," said Rob LaBreche, president of consumer marketing for College Loan Corporation. "There are a number of tax credits and deductions available, and making the right choice could have a significant impact on the size of your refund check." As students and families complete their 2006 tax returns, they can find comprehensive information about the education-related tax credits and deductions available for the 2006 tax year by accessing College Loan Corporation's Higher Education and Tax Benefits guide. The guide, made available to families as part of the Company's commitment to offering first- class service and dedicated loan counseling, is available at http://www.collegeloan.com or by calling College Loan Corporation's experienced loan consultants toll-free 24 hours a day, 7 days a week at 1.800.2COLLEGE(SM). Some of the highlights of the guide are listed below. 1) Student Loan Interest Deduction -- The interest portion of your 2006 student loan payments can be deducted from your taxable income, up to $2,500 -- Loans must have been used to pay for qualifying education expenses, such as: tuition, fees, room, board, books, supplies and transportation -- This is an above-the-line deduction, meaning that even those who do not itemize will be able to take the deduction 2) Lifetime Learning Credit -- If you paid tuition for yourself, your spouse or a dependent in 2006, you can claim a tax credit of up to $2,000 per student -- This credit allows a wide range of students and education programs to qualify, including half-time degree students and adults taking classes to acquire or improve job skills -- A tax credit is subtracted from the amount that you owe the IRS, not from your taxable income 3) Hope Scholarship Credit -- This tax credit is only available for the first two years of postsecondary education -- The Hope Scholarship Credit allows you to claim a tax credit of up to $1,650 per student -- If you are eligible for both the Lifetime Learning Credit and the Hope Scholarship Credit for the same student, you can claim either credit, but not both 4) Tuition and Fees Deduction -- This deduction, which Congress recently extended, doesn't appear on tax returns for 2006. But you can claim it on line 35 of the 1040 -- If your income is too high for you to qualify for the Hope Scholarship or Lifetime Learning Credits, then the tuition and fees tax deduction is a great option for you -- The amount that you can deduct from your taxable income is dependent upon the income that you report to the IRS. For 2006, the maximum amount you can deduct is $4,000 -- You do not need to itemize to claim this deduction 5) Tax-Free Withdrawals from Traditional or ROTH IRAs -- Families can avoid the 10% tax on early withdrawals from IRAs when the money is used for higher education expenses -- This penalty is waived when the money is spent on education for yourself, your spouse, your child or grandchild or your spouse's child or grandchild 6) Deductions for Work-Related Education -- If you take college courses that apply to your job, you can deduct the costs as a business expense should you fail to qualify for the Hope Scholarship Credit due to income restrictions -- Costs can include: tuitions, books, supplies, lab fees and transportation Begin planning for next year! The following savings plans offer additional tax benefits: 7) 529 Plans -- 529 Plans allow individuals to prepay or contribute to an account for paying a student's qualified education expenses -- Contributions are not tax deductible but amounts deposited grow tax- free and remain tax-free upon distribution -- The money can be used by siblings and other family members who are related to the original beneficiary -- Accounts can be created by extended family members -- As part of the Pension Protection Act of 2006, Congress made permanent the tax advantages of 529 plans. Previously, the tax benefits of 529's were to expire after 2010  Coverdell ESA
-- A Coverdell Education Savings Account (ESA) is a savings account that is created in trust for minors -- Contributions are not deductible, but interest grows tax-free and qualified withdrawals are also tax-free -- Multiple family members can create a Coverdell ESA for the same student; however, each cannot contribute more than $2,000 each year -- The Pension Act does not pertain to Coverdell education savings accounts, which will still face a 2010 sunset of tax benefits Because each tax situation is different, you should consult a tax professional to better understand the impact of these tax rules on your family. College Loan Corporation also recommends that families read IRS Publication 970, "Tax Benefits for Education," which can be found on the IRS website at: http://www.irs.gov/pub/irs-pdf/p970.pdf. About College Loan Corporation College Loan Corporation (CLC), headquartered in San Diego, is the nation's seventh largest student loan provider, managing more than $9 billion in student loan assets. By offering innovative loan products and industry- leading customer service, the Company has helped make higher education possible for more than 700,000 students and families. More than 900 colleges and universities have designated College Loan Corporation as a preferred lender. CLC's student loan hotline offers expert loan consultants 24 hours a day, 7 days a week at 1.800.2COLLEGE(SM). This press release is provided as a service to student loan borrowers and is not intended as qualified tax advice. College Loan Corporation is not a tax counseling organization; please consult your tax advisor for details regarding your eligibility for tax benefits. Media: Joe Caruso/Alex Slater jcaruso@gloverparkgroup.com 202.337.0808 Tracy Neumann tneumann@collegeloan.com 858.716.1503 |
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