Quiz: The Ultimate Saving Taxes on College Debt Quiz: HowStuffWorks
The Ultimate Saving Taxes on College Debt Quiz
4 Min Quiz
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About This Quiz
There are many ways to help reduce the cost associated with education. Most of them involve saving for education and receiving tax benefits on the savings or claiming tax deductions and tax credits. Take our quiz to help you zoom in on tax benefits associated with education costs.
What is a tax credit?
A tax credit is an amount that you are allowed to deduct from the tax that you owe and you may qualify for more than one credit. In some cases, you could qualify to receive all or part of a tax credit as a refund even if you do not have any taxable income.
What is adjusted gross income?
Adjusted gross income is total gross income minus deductions claimed. Your adjusted gross income is used to calculate taxes owed before applying credits.
What is the Hope/American Opportunity Learning Credit?
According to IRS.gov, the Hope/American Opportunity Learning Credit is a tax credit of up to $2,500 available for each of up to four years in postsecondary education. Up to $1,000 of this credit is refundable to an individual when the credit exceeds his or her tax bill.
What is the Lifetime Learning tax credit?
The Lifetime Learning tax credit is a credit of 20 percent on up to $10,000 in tuition and fees in any year that you take at least one course to improve job skills. The credit can be claimed only on tuition and fees.
What is important to remember about the Hope/American Opportunity Learning and Lifetime Learning tax credits?
Both have requirements that you must earn less than a maximum modified adjusted gross income to qualify for the credit. You can only apply for one of the two credits in any tax year and the Lifetime Learning credit is not refundable.
How many possible education deductions are available to reduce your federal taxable income?
There are three possible education deductions available on an income tax return. They are student loan deduction, deduction on qualified higher education and excluded income on employer education assistance.
If you qualify, how much may you deduct in student loan interest per tax return?
You may deduct up to $2,500 in interest payments, on qualifying student loans, per income tax return. It is very important to remember that this is per return and not per person, although you can add interest paid on loans for more than one person, up to the maximum total deduction allowance.
What is an important restriction to remember before taking the qualified higher education deduction?
You may not claim the qualified higher education deduction if you claimed any of the available education credits. The maximum available is $4,000, but remember that this is a deduction. If you are in a lower tax bracket, you may be better off taking a credit or refundable credit.
What is a major income exclusion that you can use to reduce your taxable income?
According to USA Funds, you may deduct up to $5,250 annually in assistance provided by your employer to cover higher education costs, such as tuition, fees and supplies. This deduction is called excluded income on employer education assistance and is not included in your income by your employer. It cannot be used in combination with other education credits or deductions.
How many programs, based on saving money for education, are available in order to earn interest without paying taxes on interest earned?
The two savings programs available are called the Coverdell Education Savings Account and the 529 college savings plans. With the 529 plans you can actually prepay tuition and lock in the price for a time in the future.
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