September 16, 2016 12:29 pm

5 Back-to-School Tax Tips

As summer winds down, students head back to school.

1. Check eligibility for an education credit

If you, your spouse, or dependent is attending college or graduate school starting this Fall, you may qualify for an education credit. The American Opportunity credit of up to $2,500 is limited to the first four years of higher education and 40% of the credit is refundable. The lifetime learning credit of up to $2,000 is for any higher education; no portion is refundable.

Most of the rules related apply to both credits. However, there are separate modified adjusted gross income limits for claiming each credit.

2. Get ready for changes in student loan applications

Starting this October 1, you can submit the FAFSA for the school year beginning July 1, 2017 and ending June 30, 2018. The tax information on this application is from your tax year 2015 tax return. You can download your tax information automatically using the IRS Data Retrieval Tool at

You can find more information about FAFSA changes from the Department of Education at

3. Teachers can deduct out-of-pocket costs

If you are an educator in grades K through 12, you can deduct up to $250 of your out-of-pocket costs for classroom materials as an adjustment to gross income; no itemizing is required.

The PATH Act signed into law last December made key changes:

  • The provision law has been made permanent
  • The dollar limit can be adjusted for inflation, although there’s no increase for 2016 because of low inflation
  • The deduction applies to professional development costs

4. Save for higher education

While there are tax incentives that help defray the cost of paying for an education, such as education credits and the tuition and fees deduction, it is important to save for this important and expensive expenditure. There are tax-advantaged savings accounts that provide for tax deferral on earnings and tax-free withdrawals for qualified education costs:

  • 529 plans.These plans help with higher education costs. While there is no tax break up front on the federal level, check for state income tax incentives.
  • Coverdell education savings plans. These plans can be used for education starting at the kindergarten level.

5. Deduct student loan interest

Out of school but still paying back loans? You can deduct interest up to $2,500 each year and you don’t have to itemize personal deductions to do it. However, the student interest deduction is limited for those with modified adjusted gross income (MAGI) over a set amount. For 2016, a full deduction is allowed for those MAGI up to $65,000 ($130,000 on a joint return). A partial deduction is allowed for those with MAGI between $65,000 and $80,000 ($130,000 and $160,000 on a joint return).


There are many education-related tax breaks for saving for education, paying education costs, and being an educator. Check on the provisions that may apply to you and your family.

Note: There are some proposals in Congress to create an exclusion for employer-paid student debt. If anything happens we’ll let you know about it.

Tax Glossary

Tenancy by the entireties

A joint tenancy in real property in the name of both husband and wife. On the death of one tenant, the survivor receives entire interest.

More terms