The American Opportunity Tax Credit and the Lifetime Learning Credit are the two educational credits available to those that pay for post secondary education.
Those who qualify for either education credit must meet both of the following requirements:
-You pay qualified education expenses for a higher education (or your spouse or a third party does)
-You, yourself, or a listed dependent is a student enrolled at an eligible education institution
There are additional rules for each credit, depending on which one you choose.
The American Opportunity Tax Credit (AOTC) is for education expenses for the first four years of postsecondary education. Those who qualify can receive a maximum annual credit of $2,500 as well as the potential for a 40% refund.
The American Opportunity Tax Credit is available to those who are pursuing a degree and are enrolled at least half time for one academic period beginning in the tax year (semester, trimester, or quarter). You cannot have finished the first four years of education at the beginning of the tax year or have a felony drug conviction at the end of the tax year. You also cannot have claimed the AOTC for more than four tax years to be eligible.
So, how do you claim the credit? Eligible students will receive a Form 1098-T Tuition Statement from the school by January 31st. Be sure to contact your school if you do not get this form.
Those who qualify for the Lifetime Learning Credit (LLC) is for expenses for undergraduate, graduate, and professional degree courses. This includes courses that apply to obtaining job skills. This credit has no limit on the years for which it can be claimed, and can provide up to a $2,000 reduction in taxable income per year.
The LLC is available to those are are enrolled or taking courses at an eligible educational institution to receive a degree or other listed credential for job skills for at least one academic period (semester, trimester, or quarter).
Just like the AOTC, qualified students will receive a Form 1098-T to claim their credit.
To see a detailed list of comparisons between the AOTC and the LLC, click this link from the IRS.
Keep in mind that you can only choose one of the credits for any one year for each student.
If you think you quality for an education credit and need more information, give Paragon Accountants a call!
