Getting a college education is costly, and most students need all the help they can get in order to pay for tuition and other related expenses. A lot of that help comes from their families. Having children in college can create a financial hardship for the family, despite the numerous student loans, grants, and scholarships that are available. Fortunately you may be able to receive a few tax breaks. Following are some tips on how to take advantage of college tax credits.
Deductions for Student Loans
If you have outstanding student loans, you may be eligible for a tax break, providing you aren’t listed as a dependent by your parents. You’re entitled to deduct up to $2,500 on a student loan that qualifies for the deduction. However, you must be single, and the loan money must be used to further your education.
If you’re employed and going to school, you may be eligible for a tax break. The classes must be related to your job, and you can’t be reimbursed by your employer. The schooling must be either required by law or it has to greatly improve your job skills in order to qualify for a tax break.
Tax Breaks for Tuition
If you’re a student, file your own taxes, and aren’t listed as a dependent by anyone else, you could be eligible for a tax break on your tuition. If you’re the parent of a dependent student, you could also qualify for similar tax deductions on the price of your child’s tuition.
American Opportunity Tax Credit
This is one of two tax credits available to non-dependent students or the parents of dependent students. The American Opportunity Tax Credit replaces the Hope Credit (a federal nonrefundable tax credit) for 2011 and 2012. One of the major differences between the American Opportunity Tax Credit and the Hope Credit is that low-income families may be allowed to receive part of the credit as a cash payment. In addition, the American Opportunity Tax Credit allows students to apply the tax credit to text books and supplies as well as going directly toward tuition payments. In order to qualify, a student must be enrolled at least half time in undergraduate courses or a similar program.
Lifetime Learning Credit
The other tax credit is a Lifetime Learning Credit. In order to qualify for a Lifetime Learning Credit, you must have used your declared income for expenses associated with getting a college education, such as tuition. Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit can apply equally to graduate or undergraduate students or even to someone merely taking classes to improve their job skills.
Tuition Tax Credit Rebate
Another tax break you may be able to take advantage of is a tuition tax credit rebate. Instituted as part of the stimulus package in 2009, the tax credit was still an option on the 2011 forms. Check with an accountant to see if it’s relevant for 2012. If so, you will need to fill out form 8863, the Education Credits form. In order to qualify for this tax rebate, you must be in school at least half time. You must also earn less than $80,000 per year and have college-related expenses in excess of $2,500 that aren’t covered by a scholarship.
Tuition and Fees Deduction
You can apply for a college tuition tax credit, or you can opt for an education tax deduction. These deductions can be worth up to $4,000 off your income. They only apply to single people who file a return of less than $80,000 or joint filers that earn less than $160,000. The return must be filed by a non-dependent student or the parents of a dependent student. The deduction must be for money that was used for tuition or other college related expenses, such as room and board. A college tax deduction is normally used when your income is higher than what’s allowed for a higher education tax credit. The college tax credit lowers the amount you pay in taxes, while the education tax deduction reduces your overall taxable income.
Get Professional Advice
Due to the fact that there are a variety of possible tax credits for students, and they frequently change from year to year, it would be a good idea to consult a tax attorney or an accountant before filing your taxes. You want to make sure you take advantage of all possible credits, but aren’t claiming anything you’re not entitled to.
Guest post from Pat Singer.