Deducting Direct Expenses

• If you pay for college expenses out of your own pocket, the IRS gives you the opportunity to deduct many of those expenses from your personal taxable income. The maximum amount of deduction that you can take during a given year is $4,000. This deduction can be taken for items such as tuition, room and board, fees, books and equipment. If you are single and your income is between $65,001 and $80,000 per year, you only get to deduct a maximum of $2,000 per year. If your income exceeds $80,000 per year, you do not get a deduction. The range for married couples is $130,001 and $160,000.
  
  

Getting Tax Credits

• Tax credits are even more productive than deductions as they reduce the amount of tax that you owe on a dollar-for-dollar basis. When you or a family member goes to college, you may get to claim some tax credits on your return. The American Opportunity credit makes getting up to $2,500 off of your taxes possible. This credit is for students who are in their first four years of college. The Lifetime Learning Credit is another one that could give you up to $2,000 off your taxes. This credit can be used by those who are beyond their fourth year of college.
  
  

Savings Bonds

• When you use savings bonds to pay for a college education, your tax return can also be affected. The Internal Revenue Service allows you to avoid paying taxes on the interest that you earn from savings bonds if you use the money to pay for a college education. To take advantage of this exemption, you must cash out the savings bonds, and use them to pay for expenses within the same year.
  
  

Other Impacts

• If you work for an employer and receive tuition reimbursement, the money that you receive may not affect your taxable income. Up to $5,250 of tuition reimbursement can be exempted from your income. Another way that you could get tax-advantaged money for college is through an education savings plan such as a 529 plan. With this plan, you get to use the money you earned from investments to pay for college, but you do not have to pay taxes on that money.