Benefit From These Tax Breaks For College Expenses

Lisa Nason- Benefit From Tax Breaks For College Expenses
If you’re a college student (or the parent of one), you should know about some key tax breaks that are available to you when you do your taxes. There are two tax credits for higher education. They’re targeted at different types of students, so it pays to know the differences.
American Opportunity Credit
This credit is for students who are earning their undergraduate degrees. The credit is specifically limited to those expenses incurred in the first four years of college. The credit is worth $2,500; the really good news is that $1,000 of that is refundable, meaning you could get that back as a refund even if you don’t owe any taxes. There’s an $80,000 income ceiling for single filers to qualify for the credit ($160,000 if you’re married filing jointly). If income is more than those amounts, the credit starts to decrease. The credit is available through the 2017 tax year.
Lifetime Learning Credit

Where the American Opportunity Credit is limited to the first four years of college, the Lifetime Learning Credit has a wider availability. This credit can be used for graduate school, undergraduate expenses, even professional or vocational courses. Plus, there’s no limit to how many years you can claim it. This credit, however, is nonrefundable, which means it’s limited to your tax liability. For example, if you qualified for the full $2,000 Lifetime Learning Credit, but had a tax liability of $500 for the year, you’d get a credit for $500.

Credits vs. deductions: What’s the difference?
Tax breaks for higher education come in two basic forms: credits and deductions.
  • Credits reduce the amount of tax that you owe on your tax return.
  • Deductions reduce the amount of income that’s considered taxable: less income taxed means less income tax.

The two deductions below are not available if you are filing married filing separately, or if someone else – such as a parent – claims you as a dependent on their return. Parents can still claim the deductions, provided they paid the expenses.

Tuition and Fees Deductions
If you don’t qualify for one of the education credits, you may still be able to deduct your tuition and fees. The deduction can cut your taxable income by up to $4,000. It’s taken as an adjustment to income, which means you can claim this deduction even if you don’t itemize deductions.The income limit for this deduction is $80,000 for single taxpayers, or $160,000 for married filing jointly.

Student Loan Interest DeductionThis deduction helps to defray the interest you have on your student loans. This deduction can reduce your taxable income by up to $2,500. Like the tuition and fees deduction, it’s taken as an adjustment to income, so you can claim it even if you don’t itemize deductions.

One Per Customer, Please
One thing to remember, though: for each student, you can claim either the American Opportunity Credit, or the Lifetime Learning Credit, or the tuition and fees deduction. The IRS won’t let you take more than one of these particular tax breaks for the same person on the same return.
But: Parents claiming two or more college kids as dependents on their return can claim one of these tax breaks for one student and another for a different student.
Have a tax question? Contact Lisa Nason.

Tax Partner with more than 20 years of experience preparing tax returns businesses and individuals, including income tax, property tax, state and local tax, sales & use tax, etc. We also work on estate and trust returns as well as assisting with tax planning, tax audits, and bookkeeping. We also help clients with general business advice and consulting as needed.

Nason Accounting, LLC is a Greenville, SC based full service certified public accounting firm that helps businesses and individuals increase and preserve their financial net worth. We provide accurate and timely accounting information that is vital for any individual or business.

We service clients both locally in the Upstate and throughout the Southeast. Our team understands the importance of great customer service, eliminating cumbersome bookkeeping stress, and making your success a priority. With experience in every imaginable accounting service, Nason Accounting, LLC is prepared to help you and your business with all of your financial needs.

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.