Tax benefits help offset college education costs
BY PHIL MULKINS World Action Line Editor
Wednesday, September 12, 2012
9/12/12 at 4:08 AM
College is an expensive way to spend seven years (or even just four) whether you're a high school grad in your first college semester or a college student close to graduation.
The Internal Revenue Service reminds us of education tax benefits that can help offset some college costs for students and parents.
These benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.
Credits, deductions tutorial: The Tax Benefits for Education Information Center website ( tulsaworld.com/tbeic) says: "Tax credits, deductions and savings plans can help taxpayers with higher education expenses. Tax credits reduce the amount of income tax you have to pay. Tax deductions reduce the amount of your income that is subject to tax, reducing the amount of tax you pay. College-expense savings plans allow the accumulated interest to grow tax-free until money is taken out (distribution) or allow the distribution to be tax-free, or both. An 'exclusion from income' means you won't pay income tax on the benefit, but you also won't be able to use that same tax-free benefit for a deduction or credit."
American Opportunity Credit: This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The American Opportunity Tax Credit ( tulsaworld.com/irsaoc) can be up to $2,500 per eligible student and is available for the first four years of post secondary education at an eligible institution. Forty percent of this credit is refundable, meaning you might be able to receive up to $1,000, even if you don't owe any taxes. Qualified expenses include tuition and fees, course-related books, supplies and equipment.
Lifetime Learning Credit: In 2012, you might be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit ( tulsaworld.com/irsform8863) for an eligible student.
You can claim only one type of education credit per student in the same tax year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.
Student loan interest deduction: Generally, personal interest paid, other than certain mortgage interest, is not deductible. However, you might be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don't itemize deductions. These education benefits are subject to income limitations and can be reduced or eliminated depending on your income. See "Publication 970, Tax Benefits for Education" ( tulsaworld.com/IRSPub970), which can also be ordered by calling 800-829-3676.
Prepaid cards hot on campuses
A recent article in The Wall Street Journal dubbed the prepaid debit card the "new man on campus," compensating for the prohibition of promoting credit cards to college students (in the Credit CARD Act of 2009, aka "the credit card reform act").
Many financial firms have turned to prepaid debit cards that can be loaded with money but typically are not linked to bank accounts. They are designed to hold everything from financial-aid funds to monthly allowances and can serve as receptacles for income tax refunds. But like other prepaid cards, they come with costs.
The credit card monitor CreditCards.com identifies 33 prepaid debit cards that range widely in features ( tulsaworld.com/CreditCardsPrepaids). Most involve monthly fees of $5.95 to $9.95, but these are waived for months in which 30 or more purchases are made. They require no credit checks and double as bank accounts for the direct deposit of income tax refunds, and many offer access to online bill pay.
The article said many cards offer incentives, and "for some students, a prepaid card offered through a college might be the fastest way to receive student-loan funds," said Rich Williams, higher education advocate with U.S. Public Interest Research Group.
Some colleges offer student IDs that double as prepaid cards. American Express's new Campus Edition prepaid card is available online and in more than 500 on-campus Barnes & Noble bookstores. The card can't incur overdraft fees, says Laura Kelly, a senior vice president at American Express.
The University of Tulsa's "TU One Card" is required for admission to university libraries, computer labs, fitness center and residence halls, for access to many campus activities and for check-cashing identification at the business office. It can also be used as a cash card on campus for purchase of food and other items and some off-campus locations.
The University of Oklahoma's "Sooner One Card" ( tulsaworld.com/SoonerOneCard) is the official OU identification card, on-campus residents' meal plan, library card, door access, facilities entrance and as prepaid Sooner Sense debit card access.
Tulsa Community College has a debit card called TulsaCC Card ( tulsaworld.com/TCCTulsaCCCard). TulsaCC Card is for accessing your funds when you choose to accept the OneAccount. With the Debit MasterCard logo, you can use the card as a debit card wherever Debit MasterCard is accepted. The card is not a credit card.
Original Print Headline: Higher ed has tax benefits
Tulsa World consumer writer Phil Mulkins wants to know which topics interest you. Call 918-699-8888, email your suggestion to phil.mulkins@tulsaworld.com or mail it to Tulsa World Consumer, P.O. Box 1770, Tulsa, OK 74102-1770.
Associated Images:
"Seven years of college down the drain!" is the least you can say after wasting expensive class time drinking at the frat house. Bluto Blutarsky - the character John Belushi played in the 1978 cult classic "National Lampoon's Animal House" - probably wishes he could have spent four good years in today's college environment with federal tax breaks for the college expenses incurred by students and their parents. Courtesy
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