The MBA, a Little Less Taxing

Ignorance of the tax code can be costly for MBA students, who may be able to take advantage of educational deductions and credits to lower their tax bill

By Francesca Di Meglio

Even if you're a graduate business student, a quant jock by trade, you still might want a little help with your taxes. After all, no one wants to pay the Internal Revenue Service more than is absolutely necessary. Students have certain benefits that other taxpayers do not. But they don't always know what's coming to them, which results in missed opportunities. "It's the myriad of deductions, credits, and benefits that cause confusion," says Gil Charney, a tax analyst at the Tax Institute at H&R Block (HRB) in Kansas City, Mo. "I suspect many students don't claim them because the complexity is overwhelming. It pays to do your homework."

To keep more money in your pocket this tax season, educate yourself about the tax benefits for students, including what's new in 2009. For help, you can turn to the IRS 970 form, which has more than 80 pages of information on tax benefits for education. Having an accountant or tax specialist look over your return is not a bad idea, either. Whether you are a full-time MBA student or an EMBA on scholarship from your company, here is a primer on tax benefits you might be able to claim.

Scholarships and Employer Assisted Plans

Many an aspiring MBA has griped about the lack of scholarships for more experienced students. Still, some of you do receive tuition reduction or scholarships. If you are among them, you can claim the money as tax free if it comes from an eligible educational institution and you provide teaching or research for that institution, according to the IRS. If your employer pays your tuition as a fringe benefit for you at work, according to an e-mail from H&R Block spokesperson Gene King, the entire amount can be excluded from taxable income each year, but only if the education is required as a condition of employment. If not, the exclusion is limited to $5,250 a year.

Hope and Lifetime Learning Credits

Things have changed in 2009 when it comes to the best-known student tax benefits—the Hope and Lifetime Learning Credits. Now known as the AOC or American Opportunity Credit, the Hope Credit applies to undergraduates. But if they're not paying their own way, those who pay their tuition (think parents, grandparents, or guardians) may be able to claim the credit if the student is a dependent and the taxpayer's adjusted gross income does not exceed certain limits.

In 2009, as part of the American Recovery Act, taxpayers can get a credit of up to $2,500 in tuition and other qualified expenses for the full four years of a traditional college education, up from two years previously. Parents who previously did not qualify for the Hope Credit because their adjusted gross income exceeded the limits may qualify now if their income is no more than $90,000, or $180,000 for taxpayers who are married filing jointly, says Charney.

Why explain the Hope credit to graduate students? Some MBA students, especially those in executive programs, have adult children or spouses attending college. Since both the Hope and Lifetime Learning credits can't be claimed for the same student, they'll have to do the math to determine which credit saves them more money. The Lifetime Learning Credit is for anyone taking at least one college course, including undergraduate, graduate, and professional courses. Eligible expenses include tuition and certain out-of-pocket expenses, such as books, but not room and board for those living at a college or university. The maximum credit per family is $2,000 or 20% of the first $10,000 in expenses per year.

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