Can I Reduce AGI With an Education Deduction?

Adjusted gross income is the total amount of money earned, as reported on your tax return, after subtracting qualified deductions. Since you ultimately pay tax on your AGI, it is to your advantage to keep your AGI as low as possible by using qualified deductions. These qualified AGI deductions include education expenses.

Considerations Before Deducting

You can typically deduct education expenses for yourself, your spouse or your dependent if he attends college or a vocational program at a higher level than high school. Further, you should take this deduction for academic terms that started during the tax year. You cannot claim this deduction if you appear as a dependent on another person's tax return or if you are married and file separate tax returns.

Deducting

You can reduce your AGI by deducting the amount of money you spend on tuition and enrollment fees. You cannot use the educational tax deduction for expenses related to room and board, books or courses on sports or hobbies. The IRS does provide an exception should the sport or hobby course form part of the requirements for a degree program. Before deducting your expenses, you must subtract all financial assistance received from your total educational expense. Financial assistance includes financial aid, distributions from educational savings bond interest payments, and college savings plans.

Notes

After subtracting any financial assistance received, you can determine your actual AGI deduction amount for your current year's tax return. This amount can change from year to year. Your AGI can limit the amount of your deduction. You cannot realize any educational deduction that exceeds your AGI. Additionally, you can only deduct educational expenses in one study area per tax year. You should speak to a tax professional when preparing a tax return that includes an educational expense deduction.

Educational Credits

You may also qualify for other types of education credits including the Hope credit and the Lifetime Learning credit. The Hope credit is for students enrolled in the first two years of higher education. To qualify for this credit, you must attend school at least halftime and participate in a degree, diploma or certificate program at a qualified institution. The Lifetime Learning Credit, on the other hand, applies to all qualifying higher education expenses, regardless of your level in school or your participation in a degree, diploma or certificate program.

References

• "Principles of Accounting"; Belverd E. Needles, Marian Powers and Susan V. Crosson; 2010
• "Education Planning"; Nancy E. Shurtz; 2009