MAKING THE MOST OF COLLEGE TAX BREAKS
Some parents spend years saving for their children’s college education, while others scramble to search out scholarships and loans at the last minute. No matter which approach you’ve taken, there are a number of tax breaks available for qualifying taxpayers paying education bills. Don’t miss out on this opportunity to offset your education costs.
GREAT TAX CREDITS
There are tax credits available to help offset the costs of education by lowering the amount of income tax. They are the American Opportunity Credit and the Lifetime Learning Credit.
American Opportunity Credit
In 2010, families who qualified for the American Opportunity Tax Credit could receive a tax credit up to $2,500 for each eligible dependent attending their first four years of college. That’s broken down into a 100% credit for the first $2,000 of qualified education expenses for an eligible student, and 25% of the next $2,000 of qualified expenses for that student.
To understand how it works, assume that a family had one dependent who was in her first year of college, and that they owed $5,000 in taxes for the year. If they qualify for the highest credit amount, they would be able to reduce their taxes owed by $2,500, to $2,500.
Lifetime Learning Credit
The Lifetime Learning Credit is a tax credit for any person who takes college classes. It provides a credit of up to $2,000. This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.
Limitations
You cannot claim the American Opportunity and the Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year.
To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
Get More Information
To get more information on education-related tax breaks, visit the Internal Revenue Service Web site at www.irs.gov. In addition, your local CPA can help you make the most of the options available to you. Consult him or her about all your family’s financial needs.
