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distribute not more than $10,000 in expenses for tu-
Education ition during the taxable year for a public, private, or
Tax Benefits religious elementary or secondary school. Distribu-
tions in excess of $10,000 are subject to tax. This limita-
tion applies on a per-student basis, rather than a per-
account basis. Note: QTPs are also called 529 Plans
Comparison of Education Credits because they are authorized under section 529 of the
Lifetime Learning
American Opportunity Credit Internal Revenue Code.
Credit
• Coverdell Education Savings Accounts (ESAs). A
Up to $2,500 per eligible student. Up to $2,000 per tax Cover dell ESA can be used to pay a student’s eligible
return. K-12 expenses, as well as higher education expenses.
100% of the first $2,000, plus 25% of the next 20% of the first Coverdell ESA contributions are limited to $2,000 total
$2,000 of qualifying expenses for each student. $10,000 of total
qualifying expenses. per year for each beneficiary, no matter how many ac-
40% of the credit (up to $1,000) may be Nonrefundable tax counts have been established or how many people are
refundable. credit. contributing. Unless the beneficiary is a person with
Eligible years: Eligible years: special needs, contributions to a Coverdell ESA must
• Until the first four years of postsecondary • All years of stop before the beneficiary reaches age 18 and the ac-
education are completed. postsecondary count balance must be distributed within 30 days after
• Reduced by number of years the American education. the beneficiary reaches age 30 (or dies, if earlier).
Opportunity Credit and Hope Credit was
claimed for the student. Exclusions From Gross Income.
Qualifying expenses: Qualifying expenses: An exclusion from income means you don’t report the
• Tuition, required enrollment fees, and • Tuition and required benefit you receive as income and you don’t pay tax on
• Course-related books, supplies, and equipment. enrollment fees. it, but you also can’t use that same tax-free benefit for a
The student must be pursuing an The student need not deduction or credit.
undergraduate degree or other recognized be pursuing a degree
education credential. or credential. • You may exclude the part of scholarships, fellowships,
Student must be enrolled at least half-time for Student must be and grants that you use for qualifying education ex-
at least one academic period beginning during enrolled in at least penses while you are a degree candidate.
the year. one course. • You may exclude up to $5,250 paid for you under a
Additional restrictions: Additional qualifying educational assistance plan. Additional
• The student can have no felony convictions. restrictions: amounts are included in your W-2 income, unless
• Taxpayer cannot use MFS status and cannot • None. they are a working condition fringe benefit. A working
be claimed as a dependent by another person. condition fringe benefit is an amount that you could
• Additional conditions apply for nonresident have deducted as an employee business expense, had
aliens and for taxpayers under age 24. you paid for it instead of your employer.
• If you cash in qualified U.S. Savings Bonds to pay for
Education Savings Plans eligible education expenses for yourself, spouse, or
Contributions that you make to education savings plans your dependent, you may exclude the bond interest
are not deductible, but the earnings accumulate tax from income. Income limitations apply.
free. In addition, no tax will be owed on distributions
if they are less than the beneficiary’s qualified educa-
tion expenses. Qualified expenses are reduced by schol- Contact Us
arships, other tax-free assistance, and amounts used to There are many events that occur during the year that can affect
figure education credits. your tax situation. Preparation of your tax return involves sum-
• Qualified Tuition Programs (QTPs). States spon- marizing transactions and events that occurred during the prior
year. In most situations, treatment is firmly established at the
sor QTPs to allow prepayment of a student’s quali- time the transaction occurs. However, negative tax effects can
fied higher education expenses. For information on a be avoided by proper planning. Please contact us in advance
specific QTP, you need to contact the state agency or if you have questions about the tax effects of a transaction or
event, including the following:
eligible educational institution that established and • Pension or IRA distributions. • Retirement.
maintains it. Effective January 1, 2018, 529 Plans may • Significant change in income or • Notice from IRS or other
deductions. revenue department.
• Job change. • Divorce or separation.
This brochure contains general information for taxpayers and • Marriage. • Self-employment.
should not be relied upon as the only source of authority. • Attainment of age 59½ or 70½. • Charitable contributions
Taxpayers should seek professional tax advice for more information. • Sale or purchase of a business. of property in excess of
• Sale or purchase of a residence $5,000.
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