Deductions for the Cost of Tuition and Fees

• If you qualify under IRS rules, you can deduct the costs of college tuition and fees paid during the year for yourself, your spouse or even an eligible dependent. Typically, you need to itemize these expenses on IRS Form 8917. These deductions may reduce the amount of your income subject to tax by as much as $4,000. Eligible expenses would include not only tuition but also student-activity fees, expenses for course-related books, supplies and equipment and other fees and expenses if they were paid to the college as a condition of enrollment or attendance.
  
  

Deductions for Student Loan Interest

• You may also be eligible to deduct the costs of interest paid on student loans that you took out to pay for college for yourself, your spouse or a dependent. This deduction can reduce the amount of your income subject to taxes by up to $2,500.
  
  Typically, you will have to meet income requirements to claim these deductions. For example, if your modified adjusted gross income (MAGI) is more than $70,000 a year ($145,000 if filing a joint return), you may not be eligible.
  
  

Deductions for Work-Related Education

• You may be able to deduct the costs of certain higher education expenses that are work related. These deductions may help reduce the amount of your income subject to tax. To claim this deduction, you must be working; must itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee; must
  
  file Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if self-employed; and must have expenses for education that meet the IRS requirements for qualifying work-related education.
  
  

American Opportunity Credit

• You may want to consider filing for tax credits versus itemizing deductions. In some cases, taxpayers can get a lower tax rate applying for education credits for education expenses instead of taking a tuition and fees deduction. For example, under the American Opportunity Credit program, taxpayers filing a 2010 return may be able to reduce their tax liability by qualifying for this credit. This program offers a maximum annual credit of $2,500 per student and can be claimed for expenses for the first four years of post-secondary education. To get the credit, you credit must file IRS Form 8863, attached to Form 1040 or 1040A. The full credit is available to taxpayers with a modified adjusted gross income of $80,000 or less, or $160,000 for married couples filing a joint return. Taxpayers with incomes above these levels are not eligible.