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Tax Benefits for the Graduate Student

If you are paying for your masters degree, you may be missing out on helpful tax benefits.

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Are you getting your masters degree? You may be eligible for financial aid from the IRS. There are a few ways one can receive help from the IRS with their educational expenses.

Most financial aid guides explain how to obtain scholarships, grants and student loans. Although you must pay your tuition and education-related expenses upfront, you can recieve credits or deductions to the total amount owed on your taxes.

Run through several tax scenarios to find the one that will save you the most money

Lifetime Learning Credit For Graduate Students

Students pursuing a masters degree enrolled in an eligible graduate school may be able to receive a tax credit of up to $2,000 for qualified educational expenses. The credit is equal to 20% of up to $10,000 of the student’s qualified educational expenses. Examples of qualified educational expenses include tuition, books, supplies and equipment that are included in the cost of tuition and the student is required to purchase them directly from the graduate school.

Keep in mind that this is not a tax refund. It is a credit that will be applied to your tax returns. It decreases the amount of money that you have to pay to the IRS after taxes. Your credit comes in the form of a refund only if you do not own taxes.

There are no limits to the number of years that you may apply. This is great if you are taking classes part-time and your masters degree is taking more than two years to complete.

If the student is still a dependent, their parents may take out a Lifetime Learning Credit for them, even if the money came out of the pocket of the child. However, the child may not claim a Lifetime Learning Credit if their parent’s claim them as a dependent. This same rule applies to married students who do not file a joint return.

Graduate Student Loan Interest Tax Deduction

A graduate student who pays more than $600 interest on student loans is eligible to receive a tax deduction. According to the terms, up to $2,500 per year is tax deductible. In order to be eligible, your Modified Adjusted Gross Income (MAGI) must be less than $75,000 and you must be attending graduate school at least half-time. To receive these benefits, request a Form 1098-E from your grad school, which shows the total interest you paid.

Tuition and Fees Deduction for Graduate Students

The Tuition and Fees Deduction allows you to claim up to $4,000 per tax year for graduate students with a MAGI of $65,000 or less. Graduate students who have an MAGI between $65,000 and $80,000 may claim up to $2,000 tax deduction. Any graduate student or their parent can claim the Tuition and Fees Deduction. However, you cannot claim this if you are married and do not file a joint return. This deduction is similar to the Lifetime Learning Credit in that only tuition and related expenses required by your grad school are eligible for the tax deduction. There is no limit to the amount of classes a student must take in order to claim the deduction.

Educational Expense Tax Deduction for Grad Students

If you are required to get your masters degree for a job, you may be eligible to receive the Educational Expense Tax Deduction. In order to be eligible for this deduction, you must either be pursuing your degree in order to keep your current salary or job, or pursuing your masters degree in order to improve your work-related skills to maintain your job. A graduate student who is pursuing a masters degree that could allow him to switch careers is not eligible.

Tips and Tactics for Tax Benefits for the Graduate Student

  • You can also withdraw funds from an individual retirement account without any penalty. However if you take the cash out of the 401k, you will have to pay a 10% early withdrawal penalty.
  • Run through several tax scenarios to find the one that will save you the most money.
  • Students living in Midwestern Disaster Areas may be eligible for larger deductions and able to include books, supplies room and board in their total amount paid.


People Who Read This Article Also Read:

Saving for the Future: Short-Term College Planning
Saving for the Future: Long-Term College Planning
Long-Term Savings Plans Overview
529 Plans: The Basics
Tax Breaks for College Students
Tuition Tax Credits
The Hope/American Opportunity Tax Credit

See All Saving for College and Tuition Tax Credits Articles

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