A couple of weeks back, this space was devoted to up front tax breaks that could aid in building up savings to help pay for college and other education costs.

But what if you are already in the throws of shelling out the big bucks for current education? Well, good news, there are significant tax benefits that may help subsidize those costs you are incurring now!

First and foremost among these benefits are a couple of education related tax credits.

The American Opportunity Tax Credit, or AOTC, is a credit of up to $2,500 per student for the first four years of college - a 100% credit for the first $2,000 in tuition, fees, books and other eligible expenses, and a 25% credit for the second $2,000.

The AOTC is 40% refundable. That means that you can get a refund if the amount of the credit is greater than your tax liability. For example, someone who qualifies for the maximum credit of $2,500, but who has no tax liability, would still qualify for a $1,000 (40% of $2,500) refund from the government.

Another credit is the Lifetime Learning Credit, or LLC. You can take a LLC of up to $2,000 per family for every additional year of college or graduate school; a 20% credit for up to $10,000 in tuition and fees. However, unlike the AOTC, this credit is not refundable.

Both the AOTC and the LLC are subject to phase out based on your income. These phase-out limits are different for each credit and differ based on filing status, so you may want to become familiar with those limits in your overall tax planning. Further, neither credit is available for expenses that have been paid with some source of tax-free money.

Closely related, but not quite as valuable as the tax credits discussed above, is the Tuition and Fees Deduction. This is an “above the line” deduction, meaning it is deducted on page one of your tax return in determining Adjusted Gross Income, on up to $4,000 of eligible expenses. Being “above the line” means you may can take the deduction even if you do not itemize.

You can choose whichever is most valuable to you to claim, either this deduction or one of the credits, but you cannot do both for the same student. Also, you cannot claim the deduction if your modified adjusted gross income is greater than $80,000 ($160,000 if married filing a joint return).

Student loans have become a common way of financing higher education costs. You can deduct interest on loans used to pay for your child's education at a post-secondary school, including some vocational and graduate schools.

The deduction is another above-the-line deduction. The maximum deduction is $2,500, however, once again the deduction phases out for taxpayers who are married filing jointly with AGI between $130,000 and $160,000 (between $65,000 and $80,000 for single filers).

Some student loans contain a provision that all or part of the loan will be cancelled if the student works for a certain period of time in certain professions for any of a broad class of employers, e.g., as a doctor for a public hospital in a rural area. The student won't have to report any income if the loan is canceled and he performs the required services. This can be a nice reward for a job well done.

With the sky-rocketing costs of education continuing to escalate, understanding the differing tax benefits associated with such costs you incur is essential to softening the blow. It can be a confusing array of income limits, definitions of what constitutes a qualified expense, and decisions about what benefits are best to take and when. Armed with the information presented above, you are on your way to getting the breaks that may be available to you!

Lane Keeter, CPA is Office Managing Partner of the Heber Springs Office of EGP, PLLC, CPAs & Consultants