Are you or or your children planning on going to college? Well, there are some great tax benefits waiting for you if you are!
Not all education credits and deductions are equal though.
American Opportunity Credit
The american opportunity credit is the most advantageous out there. In order to qualify you must make payments to an elligible university, be an undergraduate program, be in the first four years of your higher education, and not be claimed on someone elses tax return. This credit can get you up to $2500 per eligible student. Even if it brings your tax due to zero, you can get up to $1000 of the remaining refunded to you.
Lifetime Learning Credit
Lifetime learning credit allows you to get tax advantage when you are seeking graduate studies, or if you are taking a class here and there. The american opportunity credit requires you to be at least a halftime student. For the lifetime learning credit, you have no minimum hours. You could take one class and qualify for the credit. You can use this credit your whole life. It is worth up to $2000 per tax return.
For each of these credits there are income limits in which credits phase out, or you are not qualified for them at all. In this case there is the tuition and fees deduction.
Tuition and Fees Deduction
The tuition and fees deduction allows you to deduct up to $4000 from your adjusted gross income. This could lower your tax rate, and be a great solution if you don’t qualify for the credits.
What expenses count?
If you are looking to use one of these tax credits or deductions, what expenses count towards it?
- Equipment (computer)*
Its important to remember that these expenses only qualify if they are needed for education. If you are buying a computer that isn’t required for your schooling, it doesn’t count.
*Only counts for American Opportunity Credit
What expenses don’t count?
- Room and board.
- Medical expenses.
- Student fees unless required as a condition of enrollment or attendance.
- Same expenses paid with tax-free educational assistance.
- Same expenses used for any other tax deduction, credit or educational benefit.
Tuition paid to a qualified school should appear on a form 1098-T, provided by the school. If you don’t receive one of these, contact your school to obtain it. The IRS will be looking for this as proof of expenses taken.
Student Loan Interest
Generally, a person who has started paying back their student loans may deduct the interest on those payments up to $2500. This is a deduction from your adjusted gross income.
Keep track of your higher education costs, and it may help you significantly come tax time.