Posts Tagged ‘American Opportunity Credit’

Education Tax Credits – The American Opportunity Credit & The Lifetime Learning Credit

Friday, February 24th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

Education Tax Credits Help Pay Higher Education Costs 

 

Two federal tax credits may help you offset the costs of higher education for yourself or your dependents.  These are the American Opportunity Credit and the Lifetime Learning Credit.

To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by either the parent or the student, but not both. If the student was claimed as a dependent, the student cannot file for the credit.

For each student, you may claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter’s tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.

However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse’s graduate school tuition.

Here are some key facts the IRS wants you to know about these valuable education credits:

1.   The American Opportunity Credit

  • The credit can be up to $2,500 per eligible student.
  • It is available for the first four years of postsecondary education.
  • Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
  • The student must be pursuing an undergraduate degree or other recognized educational credential.
  • The student must be enrolled at least half time for at least one academic period.
  • Qualified expenses include tuition and fees, coursed related books supplies and equipment.
  • The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.

2.   Lifetime Learning Credit

  • The credit can be up to $2,000 per eligible student.
  • It is available for all years of postsecondary education and for courses to acquire or improve job skills.
  • The maximum credited is limited to the amount of tax you must pay on your return.
  • The student does not need to be pursuing a degree or other recognized education credential.
  • Qualified expenses include tuition and fees, course related books, supplies and equipment.
  • The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $60,000 or $120,000 for married couples filing a joint return.

If you don’t qualify for these education credits, you may qualify for the tuition and fees deduction, which can reduce the amount of your income subject to tax by up to $4,000. However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

For more information about these tax benefits, see IRS Publication 970, Tax Benefits for Education available at www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

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Tax Benefits for Education and Training

Tuesday, August 16th, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

Classes have already resumed for almost all students throughout the nation.    All education is an investment for our future, and this “investment” will usually always provide an exceptional “rate of return” throughout your entire life.     

If you have incurred expenses for either your education, or someone else, the costs may qualify for either a tax deduction or tax credit.   However, the requirements change almost every year.  Always review the most current requirements to ensure that both you and your expenses qualify.  Additional tips include:

  •   Keep and maintain accurate supporting records – these include (but are not limited to) credit card statements, cancelled checks, bank statements, student loan lender reports, etc;
  •  Change of address updates – be sure to always update your current address, especially with lenders.  The lender will use the latest address on file at the end of the year to file the required reports with the IRS, and to provide you with a copy for your tax returns;
  •  Review the requirements from the current tax authority publication to determine which provisions provide the greatest tax benefit to you.  For example, the American Opportunity Credit has been extended for two additional years.  This tax credit has a maximum of $2,500.00/year for calendar years 2011 and 2012.  It is important to note that this tax credit is $500.00 more than the Lifetime Learning Credit annual limit of $2,000.00.  It is also 40% refundable which means that you may receive a tax refund even if you do not owe any income taxes.  There are income limits based on your “modified adjusted income” (as defined here http://www.irs.gov/businesses/small/article/0,,id=146823,00.html  ) 
  •  Review IRS publication 970,  “Tax Benefits for Education”,  in either Acrobat Reader format (http://www.irs.gov/pub/irs-pdf/p970.pdf) or HTML format (http://www.irs.gov/publications/p970/index.html);
  •  Other topics which are contained in this publication include:  “Scholarships, Fellowships, Grants, and Tuition Reductions”, “Student Loan Cancellations and Repayment Assistance”, “Coverdell Education Savings Accounts”, “Qualified Tuition Programs”, “Education Exception to Additional Tax on Early IRA Distributions”, “Education Savings Bond Program”, “Employer-Provided Educational Assistance”, and “Business Deductions for Work-Related Education”. 

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