2 of 4: 4 Tax Tips for Making it Through the Recession with a Financial Advantage. Number Two Go Back To School
Generally speaking, during any downturn in the market most career counselors would advise the unemployed job seeker to consider going back to school. In actuality, this advice can also benefit the employed job seeker as well.
Registering in a degree or certificate program has a number of advantages. The most obvious advantage is increased knowledge and skill in the particular area of study. This can help a job seeker who is interested in changing career paths, looking to get a promotion or just remaining employed. Also, an advanced degree can provide opportunities for transitioning into a higher paying job. Most importantly, however, it can also leave a little bit of extra money in your pocket in the short term if you take advantage of the government’s education tax incentive programs. Below is a summary of a tax incentive program you may be eligible to take advantage of if you decide to take the plunge and go back to school.
The Lifetime Learning Credit is a credit for those pursing higher education beyond the first two years of an undergraduate program. Since it is a credit rather than a deduction, you may be able to subtract the full amount of the cost from your federal income tax. To qualify for the credit, you must pay post-secondary tuition and certain related expenses.
The credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program. If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return
This credit is phased out for Modified Adjusted Gross Income over $48,000 ($96,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $58,000 or more ($116,000 for married filing jointly). As a result, it is ideal for someone who may have lost their job part way through the year or has had their income reduced by an employer during the recession.
Taking advantage of this credit does mean have a little bit of disposable income. Not everyone will be able to benefit from this. However, if you have the opportunity it is worth considering as part of your planning.
For more information on available educational tax credits, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
The Hope Tax Credit is available for students in their first and second year of college or a vocational program. The Obama administration budget has proposed that the credit should be made available for four years. Our discussion assumes that those going back to school have already completed one degree so we will not be reviewing this credit in any detail. For more information on how this credit works, please visit the IRS website.
You may also be eligible to claim this expense for your spouse or any of your dependents.