Paying for college is a major investment. Whatever you plan to study, one way you can trim your expenses is by taking advantage of federal educational tax credits. When tax time rolls around, both the American Opportunity Credit and the Lifetime Learning Credit can help to offset your college costs by reducing the amount of taxes you owe dollar for dollar up to a zero tax liability. These education credits are good for the entire tax year in which you qualify; however, married taxpayers who file separately are not eligible.
For students attending a four-year college, the American Opportunity Credit is based on 100% of the first $2,000 in costs and 25% of the next $2,000, with a maximum annual credit per student of $2,500. Those costs can include tuition, fees, and the price of course materials purchased during the eligible tax year. In addition, as long as the student is between the ages of 18 and 24, going to school full-time, and not self-supported, if the credit reduces your taxes owed to zero, you’ll receive a refund of 40% of any remaining credit (up to $1,000).
For eligible students taking undergraduate, graduate, or certificate level courses at least part-time, the Lifetime Learning Credit covers up to 20% of the first $10,000 of qualifying educational expenses. It also applies to students enrolled in an eligible institution to gain or build job skills. In this case, there is no time requirement involved.
With the sky-high costs of higher education, it’s smart to cut your expenses anywhere you can. Let the tax experts at Taxation Solutions, Inc. instruct you on how to benefit from the Lifetime Learning Credit and the American Opportunity Credit for significant tax savings. We’re Raleigh’s go-to resource for intelligent tax advice!