If you or a loved one like a spouse or child is enrolling in college in the near future, remember that there are tax credits which may reduce your tax bill. Before reviewing these credits, it is important to note that 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 American Opportunity Tax Credit for one student, and claim the Lifetime Learning Credit for the other. Also, if you receive a grant or other tax-free educational assistance, you must subtract the amount of this assistance from your qualified education expenses. These credits are subject to income limitations and may be reduced, or eliminated, based upon your income.
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. This usually occurs because some of your related costs, cost of your textbooks, may not appear on the form. However, you still may be able to include those costs when you calculate your credit. You can only claim an education credit for the qualified expenses that you paid in that same tax year. If you are in the United States on an F-1 Student Visa, the tax rules generally treat you as a nonresident alien for federal tax purposes.
The American Opportunity Tax Credit (AOTC) 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 the AOTC 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 any taxes. The Lifetime Learning Credit (LLC) is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
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 are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible, ask your school if it is an eligible educational institution, or determine if your school is on the U.S. Department of Education’s Accreditation database.
If you or a loved one is attending college and you have questions about back-to-school education credits, contact the tax attorneys and CPAs at Thorgood Law Firm www.thorgoodlaw.com For a FREE consultation call 212-490-0704.
