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U.S. Tax Credits And Tax Deductions

This is not tax advice and it should not be relied upon for taking any action related to your educational situation and tax obligations. This information is presented only to demonstrate the complexity of educational tax issues and the prudence of obtaining professional advice.

Tax credits are subtracted directly from the tax a family or student owes, while tax deductions are subtracted from taxable income. There are taxable events related to both employer provided educational assistance and employee-paid educational expenses.

Educational credits and deductions may be added, deleted, or changed from one year to the next. The availability of educational credits and deductions will vary based on income level, the purpose of the education, and other factors.

*For news on EMBA program tuition deduction, see the August 13-14, 2016, Wall Street Journal article "A Win for M.B.A. Students," which details Kopaigora v. Commissioner. This Tax Court case provides "more ammunition to M.B.A. students who want to deduct education expenses." The court's decision is considered a big win particularly for executive MBA students.

Educational credits and deductions are subject to interpretation by taxpayers, employers, CPA’s, tax attorneys and other tax advisors, tax courts, and the IRS. It is very important to be aware of “defensible translations” of tax code and case law so that you don’t leave money at the IRS table.

If you qualify for more than one educational tax break related to employee-paid expenses, you generally may claim only one. What are the timing considerations of each in terms of when you pay for education and when you take the tax benefit?

See Employer-Provided Educational Assistance on the IRS website for helpful information.

Please visit the National Association of Student Financial Aid Adminstrators for a good overview of educational tax benefits. This site includes links to related IRS Publications.

Finally, consulting a CPA or other tax advisor may save you thousands of tax dollars. Using tax software may also define the limits for your educational tax benefits.