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Is college tuition deductible?
Is college tuition deductible?
We see you, freelancers and self-employed individuals (or their parents) who are in college and working, building your future on two fronts. Being a clever hustler, you're probably wondering, "Is college tuition tax deductible?" And we've got good news: you can't deduct college tuition from your taxes, but even though there's no such thing as a college tuition tax deduction, there are a few ways you can make sure that you’re not paying more than you need to for the education that can help you grow. Some of them come in the form of tax deductions, or tax write-offs, others are tax credits.
There are not any tuition and fees deductions in 2023, but we’ve got a whole page devoted just to student loan interest deductions. So let’s start with some of the other opportunities and programs available to you, like tax credits.
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What are the college tax credits in 2023?
Tax credits save directly on the amount of tax you, whereas tax deductions reduce the amount of income you have to pay tax on. And when you're on the hook to pay the IRS, tax credits can seem like little miracles, making your tax bill shrink before your eyes.
You might already be familiar with some of the more well-known tax credit programs, like the Lifetime Learning Credit and the American Opportunity Credit, both of which you may be eligible for right now!
The IRS has some guidelines you can use to determine whether you're eligible for education deductables, but if any of this is confusing, FlyFin's real-life CPA team can walk you through the finer points.
For example, if you’re pursuing post-secondary education, what you study has to be clearly related to your current field of work or business. So if you’ve got a catering company, go ahead and claim a self-employment deduction for the cost of that Uzbek cooking class, but those Samba lessons and crystal healing classes you’re taking won't fly. Only courses that are required by your field for professional development are 100% deductible.
If you want to make a career switch or study something completely different from what you’re doing now for work, that’s unfortunately not deductible. And, if the course you want to pursue would give you the first qualifier into a new role, it would also not be deductible.
American Opportunity Credit
Probably the most well-known college tax credit or education tax credit is the American Opportunity Credit. While it's not a tuition tax credit, it does apply only to students who are currently enrolled in their first four years of college education. There's good news for those of you who are studying part time while you work, too. Part-time enrollment counts, as long as it’s at least half-time and leads to a degree or certificate.
You can claim this tax credit as long as your enrollment in classes lasts for at least one term at the beginning of the tax year. The flip side, though, is that if you’ve got a degree already and are studying for a certificate or a graduate degree, you’re not eligible.
The credit is good for up to $2,500, and the income phase out starts at a MAGI (modified adjusted gross income) of $80,000. That credit is meant to cover education expenses that can include tuition, as well as any other course fees and materials. Tax credit can be received for 100% of the first $2,000, plus 25% of the next $2,000 that has been paid during the taxable year.
Remember, your MAGI is based on yearly earnings, which you can use FlyFin’s calculation tools to find, in addition figuring out how to make accurate quarterly tax payments with an estimated taxes calculator and the federal income tax that you'll owe.
The Lifetime Learning Credit in 2023
The LLC may be a better option if you’re a full-time hustler, or you're pursuing a second degree or certificate, as it’s accessible for both graduate students in academic programs and able to be used for professional development courses. Just be aware that the IRS maintains a lifetime learning credit income limit in 2023, which makes the credit start to phase out at $80,000 for 2023, and if you make over 90K, you lose your eligibility.
Education Savings Accounts
Additional tax credits related to education
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