This week I want to write on how to take advantage of Education tax credits if you, your spouse or any of your dependents is attending college or any eligible education institution.
Here are seven items that you should know about these credits:
- American Opportunity Tax Credit. This credit is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of this credit is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe taxes.
- Lifetime Learning Credit. This credit is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim this credit for an eligible student.
- One credit per student. You can claim only one type of education credit per student on your tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For instance, you can claim the AOTC for one student, and claim the LLC for the other.
- Qualified expenses. You may use qualified expenses to figure your credit. These include the costs you pay for tuition, fees and other related expenses for an eligible student.
- Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
- Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year.
- Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.
If you, your spouse or any of your dependents is attending any eligible education institution during year 2015, please call me to discuss the details in your specific tax situation.
Please remember to write me about any tax topics you will like me to write in my next articles. Remember that my goal is to keep you informed in tax issues affecting your particular tax situation.
Your accountant and friend
Julio Jiron, CPA
Written by: Julio Jiron, CPA
