Are you, your spouse, or a dependent heading off to college?
Some of the costs you pay for higher education can save you money at tax time. Here are several important facts you should know about education tax credits:
American Opportunity Tax Credit
The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty-percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
Lifetime Learning Credit
With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
One credit per student
You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For example, you can claim the AOTC for one student and claim the LLC for the other student.
You may include qualified expenses to figure your credit. This may include amounts you pay for tuition, fees and other related expenses for an eligible student.
Eligible Educational Institutions
Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
Form 1098-T, Tuition Statement
In most cases, you should receive Form 1098-T, Tuition Statement from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.
These credits are subject to income limitations and may be reduced or eliminated, based on your income.
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein