Tax 2004 Reminder: Credit/Deductions for Educational Expenses

Before we even start, we want to make it clear that only payments for
tuition and fees count for getting tax advantages. Room, board or book
costs are not eligible.

There are two aspects of taking tax advantages from your qualified
educational expenses: Deduction or Credit. You need to choose one.

o Deduction:
You may deduct upto $4000 for qualified tution and fees paid for yourself,
your spouse or a dependent.

o Credit:
The Hope credit allows a tax bill reduction of up to $1,500 for tuition for
the first two years of college. The Lifetime Learning credit is worth up to
20 percent of the first $10,000 of tuition and qualified expenses for any
post-secondary education.

o Limit on Adjusted Gross Income (AGI) to avail of these tax breaks:
The deduction is available to singles with an AGI up to $65,000 and
married couples with an AGI up to $130,000. For incomes above that
point, a $2,000 deduction exists for singles earning up to $80,000 and
married couples up to $160,000.
The credits phase out at a lower AGI of between $42,000 and $52,000
for singles, and $85,000 and $105,000 for joint filers.

Depending on your income and educational expenses, you need to
calculate and see which works out better for you. If you are too confused,
our suggestion is to use either 'Turbo Tax' or 'Tax Cut' (of H&R Block)
software which automatically calculates everything and decides which is
good for you - taking a credit or a deduction.