College Students: Are You Receiving Your Tax Credit for Your Education?

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The cost of getting into the college can be daunting. Luckily, there are many tax breaks to help compensate for those increasing expenditures. Here is a summary of education-related tax credits and tax deductions which you must be conscious of when you continue down the road to higher education.

What Is AOTC (American Opportunity Tax Credit)?

American Opportunity Tax Credit is a tax credit of up to $2,500 each year for qualifying college students. It’s fully refundable up to $1,000 which means you can get money back even though you don’t owe any taxes. You can claim this credit up to four times per eligible college student.

What Is the Lifetime Learning Credit?

The Lifetime Learning Credit is up to $2,000 a year for every qualifying student. If nobody claims you as a dependent, then you may take the credit yourself. The amount of years you can claim the credit is limitless, and there is no minimum amount of enrolment mandatory to apply for the Lifetime Learning Credit.

Which Education Credit Should I Take?

Many students will be eligible for AOTC and Lifetime Learning Credit, but the Internal Revenue Service (IRS) won’t let you take both. Usually, undergraduate students who are eligible for both credits will take the AOTC just because it is truly worth more and is fully refundable. Lifetime Learning Credit is perfectly suited for graduate students because there is no limit on the number of years that you can claim it. Undergraduate students actually taking only some courses are more probable to take the Lifetime Learning Credit because there is no minimum enrollment requirement.

Can I Claim the AOTC?

In order to apply for the AOTC, a college student should:

  • Be seeking a degree or other approved educational credential
  • Be participated for at least half time for an academic cycle during the tax year
  • The first four years of education did not end at the starting of the tax year
  • The AOTC hasn’t already claimed four previous tax returns
  • Don’t have a felony drug conviction at the end of the tax year.

There is an income limit for AOTC. To receive the total amount of credit, your (MAGI) modified adjusted gross income must be less than $80,000 (or $160,000 if you are married together). If the modified adjusted gross income is over $80,000, you will earn a decreased sum, and if it is over $90,000, then you will not be eligible to claim the credit at all.

What Education Expenses are Eligible for a Tax Credit?

Qualified education costs involve tuition fees and other expenses, which are needed for enrolment. If you claim an American Opportunity Credit, then you can also calculate the expense of books, materials, and other equipment required for your study course.

Expenses, which are not eligible for a tax credit involve room and board, insurance, health expenses, transport, and living costs.

How Much Can I Deduct for Student Loan Interest?

Student Loan Interest Deduction is a further tax benefit provided to college students or parents who are paying for college. In addition to the education tax credit, it can be taken. The new tax policy didn’t adjust the amount which you can deduct for your student loan interest. If you fulfil all the deduction conditions, you’ll still be eligible to claim up to $2,500 for interest paid on your student loans.

Parents or Students: Who Can Claim an Education Credit?

If your child is registered in college and you claim them as contingent on your return, then you can get the credit. If you’re a university student, and nobody claims you as a dependent, you can demand the credit. Everybody who claims the credit will require a Form 1098-T from the school, which demonstrates how much money has been paid for tuition and eligible costs. If you don’t have a 1098-T, then you can always request, but not all schools are needed to provide it. If your organization does not submit you a 1098-T, you’ll still need a record of enrolment and what has been paid for your tuition and costs.

Do I Have to Claim the Same Credit for Two Different Dependents?

No, although you cannot obtain both credits for the same dependent, you can demand the AOC for Child 1 and the Lifetime Learning Credit for Child 2 throughout the same tax year.

Is there a Tax Deduction for Tuition Fees?

Yes, the tuition fees deduction can minimize your taxable income by up to $4,000. If you are not eligible for Lifetime Learning or American Opportunity Credit, then this deduction can be very helpful.

You must have charged eligible education costs for a student who is registered in one or more of the courses at a qualified educational organization to claim a deduction for tuition and fees. The student can be your own, your partner, or your dependent.

Remember: if somebody else- like your parent can claim you as a dependent on their tax return, then you can’t take the deduction. It’s factual, even though they do not really claim you.

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