College Credits

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Retirement & Financial Planning Report

Two types of tax credits can help ease the pain of paying for higher
education.

* Hope Scholarship credit. This tax break is available to all students
during their first two years of education after high school. If you
spend $2,200 or more on tuition and fees in those years for each student,
you can take a credit that will reduce your tax bill by $1,650 per
student.

* Lifetime Learning credit. This tax break is per-taxpayer rather than
per student. If you spend at least $10,000 on tuition and fees this year,
you can claim a credit that will save $2,000 in tax. The Lifetime
Learning credit covers all types of education that helps you acquire
new skills or improve old ones.

With either credit, you must pay the required college bills from an
account other than a 529 plan or a Coverdell educational savings account.
Also, your modified adjusted gross income must be under $94,000, on a
joint return ($47,000 filing singly) to get either credit in full this
year.

If you are over the income limits, check with your tax pro to see if it
makes sense to not claim the student as a dependent. In that case, the
student may be able to claim one of these credits.