Can College Tuition Be a Tax Deduction If Reimbursed?
The Internal Revenue Service lets you deduct higher-education expenses, but before you claim tuition, know that the IRS doesn't let you double-dip. However, receiving reimbursement for tuition doesn't preclude you from taking the tuition tax deduction. If you qualify for the tuition tax deduction, you probably qualify for the more valuable credit.
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Identification
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You can't take the tuition tax deduction if someone reimburses you for your expenses, such as with a scholarship or grant, because you're not the one paying for the tuition, according to the Internal Revenue Service. The IRS also doesn't allow you to take this deduction if you pay for college with tax-preferred funds either, such as withdrawals from U.S. savings bonds or a tax-free withdrawal from a 529 college savings plan.
Exception
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You can take the tuition tax deduction for any expenses not reimbursed to you. For instance, if have a tuition bill of $10,000 but only receive $5,000 in reimbursement from various sources, you may possibly deduct some of that tuition. As of 2011, the IRS limits the tuition tax deduction to $4,000; if you made between $65,001 and $80,000, you could only deduct up to $2,000 in expenses, according to Intuit.
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Tax Credit
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If you qualify to take the tuition tax deduction, you probably qualify to take a credit, but not both. You must choose either the deduction or tax credit. The credit lowers your tax bill dollar for dollar, so you tend to profit more by taking the credit. However, the deduction may qualify you for more deductions and credit because it reduces your gross income.
Warning
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To claim any deduction or credit, you can't file your tax return as married but filing separately. Also, nobody may claim you as a dependent on his tax return. Calculate your tax burden with the credit and deduction and choose the write-off that lowers your bill the most. If you have multiple children, you may claim an education tax break for each child and mix and match whether you claim the deduction or tax credit.
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