On This Page
- Education Credits & Tax Deductions
- Tax-Free Tuition Savings Plans
- Tax Breaks for Education Expenses
- IRS Forms You May Need
- IRS Forms for Intl. Students
- Tax Returns for Students Abroad
- Tax Issues for Military Members
- Free Tax Advice for Students
- 20 Tax Terms Students Need to Know
- Reader Resources
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Filling out tax forms is no fun, but your attitude may change once you learn the Internal Revenue Service (IRS) may owe you money. To receive that money, called a tax refund, you just have to fill out a few tax forms and file them with the IRS. Unfortunately, the tax code can be a bit tricky. In fact, it is more than two million words long according to the Tax Foundation. This page will help guide you through the tax maze to find the tools necessary to get any money the government may owe you.
Education Credits & Tax Deductions
Tax credits and deductions for education allow you to either pay less in taxes or, in some cases, get a refund for furthering the education of a student. Tax credits are the most powerful way to save, as they reduce the amount of tax you pay by one dollar for each dollar of credit for which you qualify. Tax deductions, however, reduce your taxable income by one dollar for each dollar of deduction for which you qualify. For instance, if you’re in the 25 percent tax bracket, each dollar in deductions would save you 25 cents in taxes owed.
You have many options for how you can apply your qualified education expenses to these credits and deductions. However, you normally cannot use the same expenses for multiple deductions or credits. It is important you pick the tax break that benefits you the most. Certain credits or deductions can only be used a limited number of times while others do not have a limit. If all of this http://www.paydayloanadvance.net/payday-loans-ne/ sounds overwhelming, don’t worry. We explain common tax deductions and credits for education below and later resources are shared to help you prepare your return.
American Opportunity Credit
Who Is Eligible
The student must be pursuing a degree or credential, be enrolled at least half time for at least one academic period in the tax year, not have claimed the AOTC or the former Hope credit for more than four tax years and must not have a felony conviction as of the end of the tax year. To qualify for the full credit, modified adjusted gross income (MAGI) must be $80,000 or less for those filing single or $160,000 or less for those filing married filing jointly.
What Qualifies
The AOTC allows you to claim 100 percent of the first $2,000 in qualified education expenses per eligible student each tax year. You can also claim 25 percent of the next $2,000 in qualified education expenses per student each tax year. Qualified education expenses are generally classified as tuition, fees and other related expenses. Additionally, the AOTC allows expenses for books, supplies and equipment necessary for a course of study. Room and board, insurance and other living expenses do not qualify. The tax credit will offset your tax liability until you reach zero tax due. Any leftover credit after your tax due reaches zero is 40 percent refundable.
How to Apply the Credit
To claim this tax credit, you’ll need to use IRS Form 8863 titled Education Credits (American Opportunity and Lifetime Learning Credits) to calculate the credit amount for your situation. First, you will need to complete Part III of the form separately for each eligible student for which you are claiming a tax credit. You will need your student’s form 1098-T available to answer certain questions on this form, as well as a complete total of all qualifying education expenses. Then fill out Part I for the AOTC and place the results on your form 1040 or form 1040A as instructed.