Back to College? Did You Know About the Tax Credits You Can Receive?

Now that school is back in session your house may be empty again, but that doesn’t mean your wallet has to be empty as well! There are several tax credits and deductions available for college students that you may not know about. These tax credits and deductions will help put money back in your pocket after paying for college expenses!

There are three main credits and deductions available. They are the American Opportunity Tax Credit, the Lifetime Learning Credit, and the Student Loan Interest Deduction. Let’s dive deeper into each one!

The American Opportunity Tax Credit (AOTC)

The AOTC is a credit for education expenses that are paid out from an eligible student in the first four years of higher education (After four years or a bachelor’s degree this credit is no longer available to use on taxes). Students or parents that pay for education expenses can get a credit of up to $2,500 per student.

There are a few stipulations to be eligible for this tax credit. A student must be pursuing a degree, be enrolled at least half time for at least one academic period in a qualified learning institution (semester, year, trimester, quarter etc. depending on your learning institution), have not completed a bachelor’s degree, have not claimed the AOTC for more than four years, and not have a felony drug conviction. There is also an income limit to this credit. To claim the full credit, modified adjusted gross income must be less than $90,000 if single or $180,00 if married. (if your student is claimed as dependent then it is your MAGI, if your student is independent then it is the student’s MAGI) If you have checked all the boxes on the stipulations then you qualify for this credit!

When you claim this credit on your taxes make sure dependency status is correct and you have a valid 1098-T from your higher learning institution.

The Lifetime Learning Credit (LLC)

The LLC is a credit for education expenses for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate, and professional degree courses (including courses to acquire/improve job skills!) There is also no limit to the number of years you can claim the LLC. This credit is up to $2,000 per student per year or 10% of  each student’s tuition costs. This credit is non refundable so it can only be used to pay any income taxes you owe.

There are some stipulations with the LLC. These include being an eligible student (enrolled in courses at a higher learning institution for at least one academic period) and earn a modified adjusted gross income of less than $67,000 if single or $134,00 if married.

As always, when claiming this tax credit make sure your dependency status is correct and you have a valid 1098-T from your higher learning institution.

There are some slight differences between these two tax credits. This handy chart available on the IRS website will help you understand which tax credit is better for you.

Student Loan Interest Deduction (SLID)

Student loan interest includes the interest you paid during the year on a qualified student loan (includes both required and voluntary pre-paid interest payments). Only the responsible party of the student loan can claim this deduction. A tax deduction helps lower your taxable income therefore reducing the amount of taxes owed. This deduction allows you to deduct up to $2,500 (maximum per return) in interest paid on private or federal student loans. You can claim this deduction even if you do not itemize your deductions. This deduction is income based and your modified adjusted gross income must be less than $80,000.

This deduction is available to any student who is enrolled at least half-time in a higher education institution and has student loans.

With all of these in mind there are a few things to consider. First, you can only claim one of these tax credits per student per year (plus SLID). Second, parents can only claim these credits if their child is claimed as a dependent. If you do not claim your child as a dependent then they can claim the tax credit themselves.

As always, if you have any questions or concerns contact Jenkins CPA at 417-725-3924 and we will be happy to help you with your tax situation!