Income tax season is here. College students and their families should learn about available education tax benefits that can help lower their education costs.
On average, families spend $24,000 a year on college. However, just over a third take advantage of federal tax credits and deductions to help make college more affordable.
Education tax benefits can help make college more affordable.
The benefits have changing rules and limitations, and deciding which one works best can be challenging. But the savings can be meaningful, especially for families with more than one child in college.
Credit Where Credit is Due
The American Opportunity Tax Credit lets families reduce their tax bills by as much as $2,500 a student, for the first four years of higher education. The credit is partly refundable, so even if you owe no taxes, you can get up to $1,000 back as a refund, if you qualify.
The Lifetime Learning Credit offers a credit of up to $2,000 a year, per taxpayer return (rather than per student). It can be used for any post-high school education. The course of study doesn’t have to lead to a degree. Also, there’s no limit on the number of years it can be claimed.
Education Tax Tips Q & A
Here are some answers to common questions about education tax benefits:
■ Can I claim both the American Opportunity Tax Credit and the Lifetime Learning Credit?
An individual student can claim just one of the tax credits in a given year. However, a family with two or more children can claim different credits for different children.
One common route is for a family to take the American Opportunity Tax Credit for four years when the student is an undergraduate, then switch to the Lifetime Learning Credit when the student goes to grad school.
■ How can I tell if I’m eligible for the tax credits?
The Internal Revenue Service offers an interactive tax assistant tool on its website; this can help you see if you can claim the credits.
Trying to find out which one is the best deal can be tricky though. You may want to calculate your tax return for each option using tax preparation software, or seek professional tax advice.
■ Can I deduct the interest I pay on my student loans?
If you borrowed money to attend college, you can deduct the interest paid on both federal and private student debt, even if you don’t itemize. If you paid more than $600 in student loan interest, you’ll receive Form 1098-E showing how much you paid.
If you have questions about education tax benefits, don’t hesitate to call experienced CPAs like Williams and Kunkel, CPA, LLP today in Flower Mound at 972-446-1040 to help.
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Source: New York Times