The IRS offers two credits for those paying those high college bills, the American Opportunity Tax Credit and the Lifetime Learning Credit.
The American Opportunity Tax Credit can reduce your tax bill by up to $2500 per eligible student. Eligible costs include tuition, fees, related books, supplies and equipment during the first four years of post-secondary education (note that graduate school does not count). Up to forty percent of the credit is refundable, which means that even if your tax liability is zero, you could get a refund of a portion of the eligible credit.
The Lifetime Learning Credit can reduce your tax bill by up to $2000 for qualified education expenses. There is no limit on the numbers of years you can claim this credit and it covers both undergraduate and graduate courses. Qualified education expenses include costs of a post-secondary education or costs to acquire or improve job skills. Related costs such as student fees, supplies, course books and equipment are included only if they must be paid directly to the school as part of enrollment.
Both credits cannot be claimed the same year. So if you or a dependent are eligible for both, you would use the one giving you the greater tax benefit. Beware that both credits are subject to phase outs, meaning reduced benefits, at higher income levels.
Aside from the credits there are two education related deductions available as well.
The Tuition and Fees Deduction is deducted on the front of your Form 1040. The amount of the deduction is limited to $4000 of qualified expenses for either undergraduate or graduate courses.
Using the Student Loan Interest Deduction, you may be able to deduct up to $2500 on the front of your Form 1040. Beware that these deductions, like the credits, may be reduced or eliminated at higher income levels.
Your CPA can help you sort through which of the above will be best for you. When you bring your information to your accountant, be sure to bring all your receipts related to education expenses and any forms 1098-T you receive as a result of paying tuition, and forms 1098-E, which reports student interest you may have paid.