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Four Education Tax Breaks to Remember

Jackson Hewitt highlights tax breaks as school approaches

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Parsippany, N.J. (August 27, 2012)

By Daniel Hood

As schools prepare to reconvene across the country, tax preparation chain Jackson Hewitt Tax Service is reminding taxpayers of a number of education-related tax credits and deductions.

"The decision to attend an institution of higher education or to send a child to college is a significant financial commitment -- perhaps more so now than ever," said Jackson Hewitt chief tax officer Mark Steber. "But there is a 'silver lining' that comes in the form of tax benefits for those who qualify, provided that students and their parents know where to look."

Among the common education-related credits and deductions Steber noted:

• The student loan interest deduction: This allows qualifying taxpayers to deduct up to $2,500 of interest paid on a qualified student loan to attend an accredited, higher education institution. For loan interest to be deductible, the loan must have been for the taxpayer, taxpayer's spouse, or the taxpayer's dependent when the loan was obtained.

• The American Opportunity Credit: Set to expire at the end of 2012, this allows a credit of up to $2,500 for the qualified tuition and related expenses paid for each eligible student. This credit can be claimed for the first four years of postsecondary education for each eligible student enrolled at least half time in a qualified program. Eligible expenses include tuition, required fees and the cost of required books and software for courses.  The American Opportunity Credit is unique because 40 percent of it is a refundable credit, which allows taxpayers with no tax liability to receive this portion of the credit as a refund.

• The Lifetime Learning Credit: Taxpayers may be eligible for a credit of up to $2,000 each year for the total qualified tuition and related expenses paid during the tax year for all eligible students enrolled in a qualified educational institution. Unlike the American Opportunity Credit, the Lifetime Learning Credit is not based on the student's workload and is not limited to the first four years of postsecondary education. Expenses for graduate-level degree work are eligible for the Lifetime Learning Credit.

• The Employee Business Expense: Taxpayers who take courses to improve their job skills, to satisfy their continuing education requirements for their professional credentials, or for reasons otherwise related to their current job, may deduct the cost of their tuition, associated fees, books and supplies, and mileage from work to school. The expenses are not deductible if the course is not job-related or would qualify the taxpayer for a job in a new field.

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