Tax credits and deductions, also knowns as “tax breaks,” can help you with your expenses for college, specifically as it relates to the tax aspects.

Tax breaks for college are matched to the year the college costs are paid. However, these breaks are limited, so unused tax breaks can be wasted if you don’t time the payment of your college costs carefully. The rules for maximizing your tax breaks are complex and partially explained by the IRS.

According to the IRS website, tax credits, deductions and savings plans can help people with their expenses for higher education.

• A tax credit reduces the amount of income tax owed.
• A deduction reduces the amount of a person’s income that is subject to tax, and generally reduces the amount of tax owed.
• Certain savings plans allow earnings to grow tax-free until the money is taken out, which is called a distribution, or they allow the distribution to be tax-free, or both.

Bottom line, if you or your parents use a tax professional to prepare your taxes, drop them a quick email and see if a December or January payment works better for you from a tax credit or deduction standpoint. If you don’t use a tax professional, spend about an hour on this website doing your homework. It could literally save you thousands of dollars by reducing the amount of taxes you owe.

Valrie Chambers, Ph.D., professor of accounting, and Betty Thorne, Ph.D., professor of statistics and the Christian R. Lindback Chair of Business Administration, write Financial Fridays to bolster students’ financial wellness including preventing financial mistakes, safeguarding their assets and identity, and thinking critically about financial decisions.