Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education.
- A tax credit reduces the amount of income tax you may have to pay.
- A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.
- Certain savings plans allow the accumulated interest to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both.
- An exclusion from income means that you won't have to pay income tax on the benefit you're receiving, but you also won't be able to use that same tax-free benefit for a deduction or credit.
For tax purposes, you should enter your expenses as an adjustment and as each credit you are qualified to take and note your refund in order to determine the one that is most advantageous to your situation.