Interactive Review
Course #10074
Tax Benefits for Education
IRS Publication 970
Scholarships, Fellowships, Grants, and Tuition Reductions…….... 1
Hope Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . ……………………2
Lifetime Learning Credit . . . . . . . . . . . . . . . . . . …………………...1
Student Loan Interest Deduction. . . . . . . . . . . …………………….1
Student Loan Cancellations and Repayment Assistance . . . . . .... .1
Tuition and Fees Deduction . . . . . . . . . . . . . ……………………….1
Coverdell Education Savings Account (ESA) . . . . .. . . . . . . . . . . .. .1
Qualified Tuition Program (QTP) . . . . . . . . . . . …………….…..….1
Early Distributions From IRAs . ……………...………. . . . . . .... . .1
Education Savings Bond Program……………………….……….…1
Employer-Provided Educational Assistance . . . . . . . . . . . . . .. . .. . .1
Business Deduction for Work-Related Education . . . . . ………….2
Total Review Questions……………..………………………......…14
Scholarships, Fellowships, Grants, and Tuition Reductions
1. A scholarship or fellowship is taxable if you are a candidate for a degree at an eligible educational institution, and you use the scholarship or fellowship to pay qualified education expenses.
2. If you are eligible to claim the Hope credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can claim both.
3. You cannot claim a Hope credit if your 2006 MAGI is $55,000 or more ($110,000 or more if you file joint return).
4. There is a limit on the number of years for which you can claim a lifetime learning credit based on the same student’s expenses.
Student Loan Interest Deduction
5. If your modified adjusted gross income (MAGI) is less than $65,000 ($135,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan used for higher education.
Student Loan Cancellations and Repayment Assistance
6. If your student loan is canceled, you must always include the amount that was forgiven in your gross income for tax purposes.
7. You cannot claim the tuition and fees deduction if your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return).
Coverdell Education Savings Account (ESA)
8. Contributions to a Coverdell ESA are deductible and amounts deposited in the account grow tax free until distributed.
Qualified Tuition Program (QTP)
9. You must always include in income a distribution fro a qualified tuition program (“QTP”) established and maintained by an eligible educational institution.
10. You can take distributions from your IRAs for qualified education expenses without having to pay the 10% additional tax.
Education Savings Bond Program
11. You may be able to cash in qualified U.S. savings bonds without having to include in your income some or all of the interest earned on the bonds if you pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return and your modified adjusted gross income (MAGI) is less than $78,100 ($124,700 if filing a joint return) and your filing status is not married filing separately.
Employer-Provided Educational Assistance
12. If you receive educational assistance benefits from your employer under an educational assistance program, your employer should include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2 and you must include the benefits on your income tax return.
Business Deduction for Work-Related Education
13. If you are an employee, you can not claim a deduction for the expenses you pay for your work-related education as an itemized deduction.
Business Deduction for Work-Related Education
14. If you are an employee who is reimbursed for expenses and you give your records and documentation to your employer, you do not have to keep duplicate copies of this information.
Copyright © 2006 By
CPE Accounting and Tax Institute
All Rights Reserved