How to Save Money on Your Kid's Tuition

Tuition and Fees Deduction

The tuition and fees deduction allows you to deduct up to $4,000 of the tuition bill you pay for any post-secondary school. Even better, the AGI limitations are higher.

For 2006, if your adjusted gross income didn't exceed $130,000 as a married couple ($65,000 if you're single), you can claim the full deduction of $4,000. If your AGI is greater than $130,000 ($65,000 for individuals) but is not more than $160,000 ($80,000 for individuals), your maximum tuition and fees deduction is $2,000. The deduction is gone once your AGI goes above $160,000 ($80,000 for individuals).

This deduction is actually a bit better than the Hope or Lifetime Learning credits, because it can benefit people in the higher income brackets as well. But that's probably why 2006 is the last year for this deduction unless Congress decides to extend it.

Remember, Congress extended this deduction for 2006 in late December, after the tax forms were printed. So there's no line on the Form 1040 to claim this deduction. Use a tax preparation program such as TurboTax or TaxCut, because it will put the numbers in the right place for you.

If you're doing your return by hand -- why? -- pay attention. You have to place the letter "T" on line 35, the line for the domestic production activities deduction, which mostly small businesses take. If by chance if you're taking both the tuition deduction and the domestic production activities deduction, then put a "B" on the line for "both" and include a separate statement explaining the combined deduction, according to CCH.