Are There any Tax Breaks for Sending Kids to Private School?

As a parent, you have the choice of sending your kids to public school or private school. As it stands, the federal government doesn't offer any explicit tax breaks if you choose to take the private school route for your child's K-12 education. However, the government does offer tax breaks, and ways to save on costs related to caring for, and educating, your children. Your state may also offer tax breaks, which can help to get back some of the money you spend on tuition, when you file a state tax return.

Child Care and Special Needs Tax Breaks
You may be able to lower the upfront cost of care your child needs after school through the Child and Dependent Care Credit. This offers parents with one child a credit of up to $3,000, and parents with two or more children, up to $6,000. You can use the credit to offset the cost of after-school childcare services offered by your child's private school or another service in the community.

If your child has special needs, as determined by a qualified physician, and must attend a specialized private school for those needs to be met, this may qualify as a medical expense. If it does, based on your filing, this may be deductible which can offset the cost of tuition (more on deducting medical expenses). Please note, you must itemize deductions to qualify for this type of tax deduction.

Coverdell Education Savings Accounts
A Coverdell Education Savings Account (ESA) is an investment savings account. Putting away money in an ESA doesn't reduce your tax bill, but you don't pay taxes on the earnings. You can use the money saved in an ESA to pay for your child's private school education, including textbooks, supplies, and tuition. The maximum contribution to an ESA is capped at $2,000 and may be reduced based on your income.

Higher Education Credits
As a parent, you don't get any direct tax credits or deductions from the federal government until your child goes to college. Once enrolled, however, you can take advantage of the American Opportunity Credit, the Lifetime Learning Credit, or tuition deductions to reduce your tax bill. These tax breaks can be used to help offset the cost of tuition, books, and other supplies needed for your child's college education, and are available for students enrolled in both private, or public, colleges and universities. Read more on tax savings for students.

State Tax Credits
The federal government will refer you to your state to determine if any tax credits are available to lower the cost of private school education. Some states, including Alabama, Illinois, Indiana, Iowa, Louisiana, Minnesota, South Carolina, and Wisconsin offer individual tax credits and deductions to parents who pay private school tuition or home school their children. Such tax incentives vary widely among the states that offer them—some are offer greater incentives than others—so it's very important to contact your state's treasury or taxation agency to find out eligibility requirements and amounts.

Quiz: Are Education Expenses Deductible?

True or False: Some education expenses are deductible. Answer
True. Under the IRS's Qualified Education Expenses guidelines, deductions for tuition and fees can reduce the amount of a filer's taxable income by up to $4,000 a year. Individual taxpayers can file for the deductions for themselves, a spouse, or dependent students. Those who are married filing separately, or claimed as dependent on another’s tax return, do not qualify.

True or False: Qualified Education Expenses are claimed as adjustments to income. Answer
True. The deduction can be claimed even without itemizing on Form 1040’s Schedule A. These deductions can be claimed by eligible taxpayers even if they do not qualify for the American Opportunity Credit or Lifetime Learning Credit.

True or False: Taxpayers cannot claim education deductions for themselves. Answer
False. Taxpayers can claim a tuition and fees deduction if all three of the following requirements are met: 1.) The filer pays qualified education expenses of higher education. 2.) The filer pays the education expenses for an eligible student. 3.) The filer is an eligible student, the spouse is an eligible student, and/or a dependent is an eligible student claimed as an exemption on the tax return.

True or False: A student’s living expenses do not qualify for deductions. Answer
True. Tuition and fees paid to enroll in an educational institution are eligible for deductions, but personal, living or family expenses, such as room and board, are not.

True or False: There are no income limits in qualifying for education related deductions. Answer
False. Taxpayers can reduce taxable income by $4,000 by claiming education related deductions if modified adjusted gross income (MAGI) does not exceed $160,000 if married filing a joint return, or$80,000 if single, head of household, or qualifying widow(er).

True or False: A tax payer can claim the American opportunity tax credit (AOTC) for more than one dependent student. Answer
True. The AOTC offers a maximum annual credit of $2,500 per eligible student for qualified education expenses paid for the first four years of each student’s higher education. This is a great savings for parents with more than one child in college. The credit is 100 percent of the first $2,000 of qualified education expenses paid for each eligible student, and 25 percent of the next $2,000 of qualified education expenses paid for each student.

True or False: There are no tax breaks or other incentives offered for graduate school. Answer
False. While the Lifetime Learning Credit (LLC) can deduct some costs for students enrolled in undergraduate programs, it can also be used as a deduction for graduate and professional degree courses. There is no limit on the number of years that filers can claim the credit, which could be worth $2,000 per tax return.

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