Deductions reduce the amount of income subject to income tax. Credits provide greater tax savings, but for those who do not qualify for credits, deductions will lower tax liability.
Tuition and fees deduction
Taxpayers who paid tuition to a post-secondary educational institution for themselves, their spouses or dependent children may take a maximum $4,000 deduction. To qualify, your modified adjusted gross income must be no more than $160,000 for married filing jointly taxpayers, $80,000 for single, head of household or qualifying widow(er) filing statuses. Married filing separate taxpayers may not take this deduction.
You do not need to itemized deductions on a Schedule A. The deduction is entered directly onto the 1040 or 1040A form. Filers must complete and attach Form 8917 to take this deduction.
Taxpayers that applied education expenses to the American Opportunity Credit or Lifetime Learning Credit may not take this deduction.
Student loan interest deduction
Students that have begun repaying student loans can enter the amount of interest paid in 2012 directly into the 1040 or 1040A form. No other form is needed. The amount of deductible interest can be found on Form 1098-E issued by the institution servicing the loan. The maximum modified gross income allowed to qualify for this deduction is the same as for the tuition and fees deduction.
Work related education expenses
You may deduct education expenses that meet the following criteria:
- The coursework is required to keep your present salary, status or job;
- The requirement serves a genuine purpose for your employer’s business;
- The education is not part of a program that will qualify you for a new trade or business.
Amounts you paid for tuition, books, supplies and equipment that were not reimbursed by your employer, may be deducted from income on a Schedule A Itemized Deductions form.
If you had to travel for the education, and your employer did not foot the bill, you may deduct transportation costs, hotel and food costs, with limits. These deductions are calculated on Form 2106 Employee Business Expenses, and transferred to the Schedule A.