Tax Credits that Aid Higher Education
Are you tackling steep higher education costs for yourself or a family member and falling short, you can avail some of the tax credits offered by the government. As the names suggest, these assistance options are not deductions but credits, hence they could tax a huge chunk out of your tax bill. Two of the major credits that help students and parents finance education expenses are:
1. American Opportunity Credit
This credit is an advanced version of the Hope Educational assistance credit, the provisions of the American Taxpayer Relief Act of 2012 state that the American Opportunity Credit will be available from the 2017 tax year. This tax credit is worth $2500 which is greater than the $1800 that the Hope credit could claim for you. Moreover, the American Opportunity credit is refundable up to 40 percent, that means you can get a refund of $1000 if you are not liable for any taxes. There are certain income limits stating who can claim this credit, but they are higher than those accompanied with the Hope credit. You can acquire up to $80,000 if you a single filer and twice the amount if you are married and jointly filing, and still claim the full credit. But a reduced credit limit is available for single filers making up to $90,000 and joint filers who earn up to $180,000. Even though the American tax Credit has advanced, it still has certain restrictions such as, it can only be utilized during the initial four years of college to claim expenses.
2. Lifetime Learning Credit
If you are going to incur education expenses beyond the four undergraduate college years, you may want to consider lifetime learning credit. It can be availed by anyone for undergraduate, graduate and professional degrees courses. However, the course must qualify as one that improves your present job skills or helps you get a new job, only then you can partially pay for the course using tax credit. If your fulfill the IRS guidelines, you can claim $10,000 of your education expenses, you can also claim this if you have a kid that is going to college. But keep in mind, that these costs do not translate directly towards your tax bill. Instead you are allowed to claim up to 20 percent of your eligible lifetime leaning expenses, this could get you a maximum credit of $2000.
In order to qualify for the above credits, you will have to pay post secondary fees and tuition for yourself or your dependent. This credit can be claimed the student or the parent but not both. It is important to note that if the student is claimed as a dependent, then he or she can’t file for credit. Also, you cannot claim a credit if for a student that is named as a dependent if you have already used fees and tuition adjustment for that same student. However, you can claim a credit if you have acquired a distribution from a qualified tuition program such as Coverdell Education Savings.
If fulfill the required conditions for both of the above mentioned credits, then you must pick any one, you can’t claim both in same year for the same student.