The IRS offers higher education tax credits for those who are in college or have a dependent in college. This credit is important to know about when taking care of your tax accounting, as it can help enhance your return or decrease money you will have to pay to the IRS. There are several options available, but you cannot use them all at the same time, as they are alternative tax credits to one another.
Let’s explore each option and how it can help you.
The American Opportunity Credit
This credit can be used for a variety of educational expenses, including tuition, books and some fees. You may use if up to four years, but the student needs to be enrolled at least part time in a degree program. Those who have an adjusted gross income of $80,000 a year or $160,000 jointly may be eligible for the credit. Recipients who are eligible can receive up to $2,500 credit. Like other credits, it would be deducted from your tax due rather than your taxable income. In addition, you may claim a $1,000 tax refund if the credit exceeds the amount of taxes you owe. This credit can be used on multiple students, which can help households that have more than one student in college. In addition, those who are married and filing separately cannot claim this credit. This credit equals 100% of the first $2,000 qualified education expenses plus 25% of the next $2,000 with a max of $2,500 annual credit.
The Lifetime Learning Credit
For those who are not in a degree-seeking program or do not attend college at least part time, you will not be eligible for the American Opportunity credit. However, you may be able to take advantage of the Lifetime Learning credit. Some may qualify for both, but you will only be eligible to claim one higher education credit. The Lifetime Learning credit does not have a cap on how many years it can be claimed like the American Opportunity credit. It can be applied to expenses including tuition, books and some fees. There is a gradual phase out for tax payers that have a modified adjust gross income of $51,000 or $102,000 for those filing a return jointly. Recipients who are eligible can receive up to $2,000 credit per tax return. It cannot be used to claim a tax refund.
To ensure you get the most from your higher education credit, consult a tax accounting professional. Room and board are not a qualified expense for these credits, but you still want to keep track of these expenses as your tax professional may be able to deduct them in other areas. They will know all the rules and regulations regarding these credits. If you are ineligible for these credits you may still be able to deduct tuition cost and fees.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of the same issues faced by our clients.