As you consider your next steps into higher education—whether you’re just finishing high school or switching careers—you’ll want to get as full a picture as possible of how school will impact your finances. Student loans, scholarships, and job income could all be part of that puzzle. But the tax implications are another piece that often go unconsidered!
Talking taxes isn’t quite as exciting as slipping into the kitchen and whipping up a beautiful cake or the perfect homemade pasta. But knowing what to look for when it comes to tax deductions could possibly save you thousands of dollars over the course of your education. And that’s enough to get anyone excited.
Note: As Auguste Escoffier School of Culinary Arts is based in the United States, the information provided here is specific to American students. International students should consult the tax codes of their respective countries. Nothing in this article is intended to be professional tax advice. Always consult a tax advisor regarding your specific situation.
Student Loan Interest Is Tax Deductible
If you take out student loans to fully or partially cover the cost of your culinary school education, you can deduct the interest you pay on those loans from your taxable income. The maximum amount of this deduction is either $2,500, or the amount of interest you actually paid during the year. For example, if you paid $3,000 in loan interest, you can deduct $2,500 from your taxable income. If you paid $2,000 in loan interest, you can deduct $2,000 from your taxable income.*
The student loan interest deduction only applies to qualifying student loans, which usually include federal loans and private loans from companies like SoFi or Sallie Mae, and eligibility requirements include income limits that are adjusted each year. It does not cover loans between individuals, like a loan from a parent to their child.
You May Also Be Eligible for Tax Credits
There are two tax credits that you may be eligible for as you pursue your education: The American Opportunity Tax Credit (ATOC) and the Lifetime Learning Tax Credit (LLC). You can only claim one of these credits in a single tax year, but they can potentially save you thousands at tax time!*
Tax Credits vs. Tax Deductions: What’s the Difference?
- A tax credit is a simple reduction of the income tax you owe. If your federal tax bill is $1,000 and you receive a $1,000 tax credit, your net tax bill would be $0. Some tax credits are refundable. This means you receive the full amount of the credit even if it’s more than what you owe on your tax bill. So if your federal tax bill is $700 and you receive a $1,000 tax credit, you would receive a $300 tax refund.
- A tax deduction is a reduction in your total taxable income for the year. For example, if you earned $50,000 in income for the year and had $5,000 in tax deductions, you would only have to pay taxes on $45,000 of income.
The American Opportunity Tax Credit (AOTC)
If you’re pursuing an associate degree at Escoffier, you could be eligible for the The American Opportunity Tax Credit (AOTC). The AOTC is a credit for education expenses for the first four years of postsecondary education. Students must be working toward a degree and be enrolled at least half-time for at least one academic period (meaning a semester, quarter, or term, depending on how your school breaks up the school year.)
Since this credit is limited to the first four years of higher education, it is usually only available to associate degree or bachelor degree students. If you have already attended four years of postsecondary school, you will not be able to claim the AOTC for your supplementary education.
The maximum annual credit through the AOTC is $2,500 per eligible student. To claim the full credit, your modified adjusted gross income (MAGI) must not exceed $80,000 for single filers, or $160,000 if married filing jointly. After that, your credit amount will decrease. You cannot claim the credit if your MAGI is over $90,000 for single filers, or $180,000 for joint filers.
This credit is partially refundable. If the credit brings the amount of tax you owe to zero, you can receive a refund of 40% of any remaining amount of the credit (up to $1,000). For example, if your tax bill was $2,000 and you received the full $2,500 tax credit, you would be refunded $200—40% of the remaining $500.
The Lifetime Learning Tax Credit (LLC)
Students enrolled in Escoffier’s diploma programs, or who are pursuing additional credentials after already earning a bachelor’s degree, may be eligible for the Lifetime Learning Tax Credit (LLC).
This credit is applicable to students in undergraduate, graduate, and professional degree programs at eligible schools. Most accredited schools, like Escoffier, qualify for this credit. But you can check with the IRS for a list of accrediting agencies to make sure yours is listed.
To be eligible for the LLC, you must:
- Be enrolled or taking courses at an eligible educational institution.
- Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills.
- Be enrolled for at least one academic period beginning in the tax year.
The credit is equal to 20% of the first $10,000 in tuition expenses you pay per year, up to a maximum credit of $2,000.
To claim the full credit, your MAGI can’t exceed $90,000 for single filers or $180,000 for those filing a joint return.
This credit can be used every year that a student is enrolled in an eligible institution. It isn’t restricted to four years, like the AOTC. And the student doesn’t have to attend school full-time in order to receive it.
Keep in mind that this credit is also not refundable. So if the credit reduces your tax liability below $0, you will not be able to receive a refund for the overage.
You Have the Right to Minimize Your Tax Liability
Understanding culinary school’s impact on your taxes is an important piece of the overall financial picture you’ll need to consider when making the decision to pursue education. Deductions and credits can be confusing, but you have the right to take every eligible step to minimize your tax bill.
A tax accountant is the right person to ask about your specific circumstances and eligibility. Even if you can’t get one of these credits, someone who specializes in taxes may be able to help to minimize your tax liability and maximize the money you get to keep in your pocket. For questions about paying for culinary school, our Financial Advisors can help. Contact us for more information about tuition, financial aid, and scholarship opportunities!
To learn more about the financial side of education, try these resources next:
- How Much Does Culinary School Cost and How Can You Pay For It?
- Complete Guide to Culinary Scholarships
- How Long Does it Take to Pay Back Student Loan Debt…And Is It Worth It?
This article was originally published on Feb. 10, 2022, and has since been updated.
*Information may not reflect every student’s experience. Results and outcomes may be based on several factors, such as geographical region or previous experience.
**Auguste Escoffier School of Culinary Arts does not provide financial advice. Always consult with a professional to determine what is best for your situation.
