This is the first part of our multi-part blog on tax benefits for education. Any present or former (or future) student should utilize the knowledge, experience and expertise of the tax professionals at the Thorgood Law Firm to ensure that they take full advantage all the credits and deductions that the law allows for students of higher education.
Tax credits, deductions and savings plans offer taxpayers ways to reduce their expenses for higher education.
- A tax credit may reduce the amount of potential income tax.
- A deduction reduces the amount of income that is subject to tax, thus reducing the amount of tax paid.
- Certain qualifying savings plans may either allow accumulated earnings to grow tax-free until money is distributed, allow the distribution itself to be tax-free, or both.
- An exclusion from income eliminates income tax on a particular benefit, while eliminating the possibility that such benefit may qualify as a credit or deduction.
An education credit reduces the amount of tax owed on a tax return. As a refundable, if the credit reduces tax to less than zero, the IRS may award a refund. There are two education credits available: the American opportunity tax credit (AOTC) and the lifetime learning credit.
Minimally, both credits require all of the following in addition to other credit-specific requirements:
- The taxpayer, his or her dependent or a third party pays qualified education expenses for higher education.
- An eligible student must be enrolled at an eligible educational institution.
- The eligible student is the taxpayer, a spouse or a dependent listed on the taxpayer’s tax return.
Taxpayers eligible to claim the American opportunity credit and the lifetime learning credit for the same student in the same tax year may choose either credit, but not both. To claim the AOTC, the taxpayer and qualifying student must have a valid Social Security number or Individual Taxpayer Identification Number, issued before the due date of the applicable tax return.
If you are currently enrolled in college and have questions about education credits and deductions, or are repaying a student loan and have questions about interest deductions, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
