Are your kids going off to college?
College is more expensive than ever, but there are two education tax credits to help offset the costs of college by reducing the amount of income tax you owe.
1. The American Opportunity Tax Credit
- You may claim up to $2,500 per student per year for the first four years of school as the student works toward a degree.
- Forty percent of the credit (up to $1,000) is refundable. The other 60 percent is nonrefundable. The credit is limited to the amount of tax you must pay on your taxable income.
- This may be used toward tuition, fees, books, supplies and equipment.
- The full credit is available to individuals, whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. You cannot claim the credit if your modified adjusted gross income is $90,000 or more ($180,000 or more if you file a joint return).
2. The Lifetime Learning Tax Credit
- You may claim up to $2,000 per student per year for any college or career school.
- The full credit is nonrefundable and is limited to the amount of tax you must pay on your taxable income.
- This may be used toward tuition and fees, as well as for books, supplies and equipment required for the course.
- The full credit is available to individuals, whose modified adjusted gross income is $55,000 or less, or $110,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. You cannot claim the credit if your modified adjusted gross income is $65,000 or more ($130,000 or more if you file a joint return).
Expenses not qualifying for either tax credit:
- Room and board
- Transportation
- Insurance
- 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
At the end of the year, the education institution will issue a Form 1098-T, Tuition Statement to the IRS, as well as the student. This will include some or all of education expenditures. We have qualified professionals to assist you with identifying and claiming these tax credits. For more information on tax strategies that may benefit your business contact a Smith Schafer professional today! Click here to start the discussion. We look forward to speaking with you soon.
