For 2008 and 2009, depending upon your income, with one exception, you are entitled to a deduction on your tax return for for cost of post-high school education limited to one of the three following amounts :

  • $4,000
  • $2,000
  • Nothing at all

Your total income  (after certain adjustments such as deductible IRAs) determines whether or not you are entitled to a $4,000, $2,000 or Zero deduction.   

  • If your modified income is $65,000 or less ($160,000 or for joint return filers), the maximum deduction is $4,000.
     
  • If your modified income is between $65,001 and $80,000 ($135,001 and $160,000 if filing a joint tax return), the maximum deduction is $2,000.  
     
  • There is no deduction if modified income exceeds $80,000 ($160,000 for joint tax return filers.  These dollar amounts are absolute

There are a number of restrictions involving this deduction:

  • You cannot claim this deduction if you are claiming either a hope or lifetime learning credit for any tuition and fees for the same student.  
     
  • You cannot claim this deduction if your filing status is married filing separately.
     
  • Your deduction is either reduced or eliminated if your income exceeds certain levels; this restriction is discussed in detail next.

Example

If you are single and your modified income is $80,000, you are entitled to a deduction of $2,000.  If your income is just $1 higher, you lose the entire $2,000 deduction.

Other than the limited $2,000 to $4,000 deduction discussed above, educational expenses are deductible only if the courses help you maintain or improve your skills in your present occupation. If the education will qualify you for a new trade or business, they are not deductible. Furthermore, if the education is in the form of travel, the expenses are not deductible under any circumstances. . An example of educational travel would be a French teacher traveling to France to improve his/her language skills. 

Generally, to take this type of deduction you have to itemize, since  educational expenses are classified as a "miscellaneous deduction".  For information on "miscellaenous deductions" press here. 

There are a number of tactics that will result in getting more tax savings with your educational expenses.  For example, you could ask your employer to pay the cost of your tuition under an employer tuition plan, even if it means a pay cut equal to the tuition payment. Tuition payments (under a plan) of up to $5,250 per year are not subject to either income or social security taxes. The employer should also save on taxes, since the tuition plan payments should be exempt from payroll taxes.

Also, in many cases the new American Opportunity Tax Education Credit, which will be in effect for years 2009 and 2010, may be more beneficial, especially for higher income individuals. For information on this topic, press here.

Education expenses is a very complex area, and it involves a number of alternatives. You need to consult with a tax advisor such as myself . You can call me at (708) 647-1045 or if you are a client, you can send me a secure Email by pressing here.

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