Grab your books and your cash, it’s back to school time! Whether you or a loved one is getting started on their educational journey, we all know how expensive college can be. Educate yourself on these back-to-school tax credit tips from the IRS:
There are two types of educational credits, the American Opportunity Tax Credit and the Lifetime Learning Credit.
Students who quality for the American Opportunity Tax Credit (AOTC) can get a minimum annual credit of $2,500 with 40% of the credit being refundable.
Here’s how you know if you qualify:
-You are pursuing a degree
-You are enrolled at the minimum of half the time for a least one academic year
-You have not completed your first four years at the beginning of the tax y
-You don’t have a felony or drug charge by the end of the tax year
-You haven’t claimed the AOTC for more than four years
The Lifetime Learning Credit allows you to claim up to $2,000 tax credit on your return. Just answer yes to these following questions:
-Do you/your dependent/3rd party pay qualified education expenses (tuition, fees, and the like)?
-Do you pay these expenses for a student who is enrolled in an eligible college, university, vocational, or post-secondary school? View the list of qualifying institutions here.
-If you are the eligible student, is your spouse or dependent you listed on your tax return?
Non-resident students attending college on a visa can file taxes as a nonresident alien. Students who were a nonresident alien for any part of the tax year can’t claim an education credit.
Keep in mind that you can’t take the American Opportunity Tax Credit, the Lifetime Learning Credit, and the qualified expenses in one year. Each student gets one per year, so if you have multiple students, you can use different credits for each. All credits are subject to limitation based on your income. View IRS.gov to learn more about qualification, tax benefits, and limitations.
Be on the look-out for form 1098-T from your school, which will help you report your qualified expenses, and give Paragon Accountants a call if you need assistance with your college finances!
