A recent survey of more than 1,000 American adults, commissioned by CCH and conducted by GfK Roper, found that most taxpayers don’t know which tax breaks are most beneficial to them, including higher education tax credits and deductions.
Remember my post from several weeks ago outlining the tax credits and tax deductions for higher education expenses? Well, according to the survey, most people thought the deduction would save them more in taxes — when in fact, the tax credit offers much bigger savings.
- 41 percent or respondents said the higher education deduction saves the most
- 16 percent said the Hope Credit would save the most
- 14 said the Lifetime Learning Credit is the biggest tax break
- 29 percent said they didn’t know
Either the $2,000 Lifetime Learning Credit or the $1,800 Hope Credit (per student for the first two years of undergraduate education) would provide a bigger tax break than the higher education deduction, which is up to $4,000 for qualifying taxpayers.
Tax credits save more than deductions because they reduce your tax bill dollar for dollar. If, for example, you are in the 25% bracket, the $2,000 Lifetime Learning Credit reduces your tax bill by the full $2,000. The $4,000 higher education deduction only reduces your tax bill by $1,000 — the deduction is double, but the reduction is half.
Also note that as I reported a few weeks ago, for your 2009 tax return (due April 15, 2010), the Hope Credit is being renamed the American Opportunity Tax Credit and the amount of the credit will increase. So be sure to check the IRS site before filing your 2009 taxes if you or your child is enrolled in college this year!