This tax credit is phased out as your adjusted gross income rises from $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint returns. It's good for all four years of undergraduate college.

This is a per-child credit. Room and board do not qualify as expenses.

Lifetime Learning Credit: This credit is 20% of up to $10,000 in qualified undergraduate or graduate expenses. Since the maximum benefit here is $2,000, the American Opportunity Credit at $2,500 should always be better for undergraduate expenses.

The income phaseout here is $50,000 to $60,000 for single filers and $100,000 to $120,000 on a joint return.

This is a per-family credit. Room and board do not qualify as expenses.

4. Tax-free employee benefit

Better than a deduction. Even better than a credit. Nothing beats having your employer pay for your tuition as a tax-free employee benefit.

The employer sets up an educational assistance plan, and you can receive as much as $5,250 in tax-free cash to pay for graduate or undergraduate tuition, fees, books and supplies. The courses taken don't even have to relate to your business. Courses in sports, games and hobbies are specifically excluded, however, unless they relate directly to your business or are required as part of a degree program.

Getting creative: Unfortunately, the exclusion applies only to the employee, not to the rest of the family. That doesn't help fund the kids' education. But if you're self-employed, a funding loophole created by Congress can help you. Hire your kids to work for you and pay them a reasonable wage. At almost any age, they can do filing and mailing. I had my kids welcome my clients and serve coffee to them.

For 2011, the first $5,800 you pay them is taxed at zero (assuming no other income). What's paid is deductible by you for both income tax and Social Security purposes.

There's no federal Social Security or Medicare tax on an unincorporated parent hiring a child under age 18 and no federal unemployment tax until the child hits 21.

Your family enjoys the tax savings between your marginal rates and those of the kids. Say you have three kids under 18 who earn $5,800 each. If you're in the 28% bracket with a 15.3% Social Security hit, that creates an additional $7,534 (.28 + .153 = 43.3%. $5,800 x 3 x .433 = $7,534) in family wealth, each qualifying year.

What do the kids do with their tax-free cash? Put it in a Section 529 account, of course!

Jeff Schnepper is the author of the best-selling book "How to Pay Zero Taxes," which is in its 30th edition. He is a former professor of taxation, accounting and finance. Schnepper now has a full-time tax planning and legal practice in Cherry Hill, N.J. Click here to find Schnepper's most recent articles.