How to Handle Education Taxes Without an Advanced Degree

If calculating your tax bill isn't enough to make you cry, the thought of planning for your kids' college education ought to do the trick.

But we here at TheStreet.com aren't looking to make you cry -- in fact, we're here to provide a little good news on the subject of education costs and taxes. There are a slew of new and new-ish tax breaks built into the tax code provided to make paying for college easier. Some allow for tax-free savings, some are deductions that reduce your taxable income and some are credits that serve as a sort of gift certificate for money off the tax you owe.

New this year are several "above-the-line deductions" (which can be claimed even if you don't itemize) for education costs, and existing rules for qualified tuition plans and student interest deductions have been tweaked as well.

Coverdell Education Savings Accounts. Formerly known as "Education IRAs" -- even though they were not individual retirement accounts -- the more aptly named Coverdell Education Savings Accounts allow taxpayers to contribute after-tax money to an account whose beneficiary is a child under age 18 (unless the beneficiary has special needs due to a physical, mental or emotional condition). The money grows tax-free and the beneficiary pays no tax on the withdrawal, provided the money is used for qualified education expenses. Qualified education expenses include tuition, room and board, uniforms, transportation and supplementary items for students in kindergarten up through the day they turn 30. At that point, all funds in the Coverdell ESA must have been used for education costs or rolled into the account of a younger relative.

The contribution limits have increased fourfold for 2002: Instead of a $500 per-child maximum contribution, the limit is now $2,000. Didn't realize that? Never fear -- the deadline for contributing has also been extended. You now have until April 15 to contribute, instead of the earlier Dec. 31 deadline.