Many taxpayers overlook the long list of deductions that they may take when completing and filing their tax returns. The IRS has estimated that millions of taxpayers overpay their taxes each year mainly because they fail to avail themselves of all of the possible deductions. The tax professionals at the Thorgood Law Firm can help ensure that all taxpayers take advantage of any and all deductions that may apply to them. Here is the sixth part of our multi-part series of blogs on the most overlooked tax deductions:
COLLEGE TUITION & LOAN DEDUCTIONS
The American Opportunity Credit
The American Opportunity Credit basically replaced the Hope Credit. It is available for all four years of college, rather than just the first two.
This tax credit is based on 100% of the first $2,000 spent on qualifying college expenses and 25% of the next $2,000, which results in a maximum annual credit per student of $2,500. The full credit is available to student taxpayers whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). The IRS phases the credit out for student taxpayers with incomes above these levels.
If the credit exceeds tax liability, it may trigger a refund, unlike most other credits which are “nonrefundable,” and don’t result in a refund. This credit was scheduled to revert to the Hope Credit limits in 2018, but Congress made the American Opportunity Credit permanent in 2015.
The Lifetime Learning Credit
This useful credit isn’t just for college-age individuals between the ages of 18 and 22 or just the first four years of college. Taxpayers may claim the Lifetime Learning credit for any number of years and is available for all students, even parents.
This credit is worth up to $2,000 a year, based on 20% of up to $10,000 spent for post-high-school courses that lead to new or improved job skills. Thus, classes taken by retirement aged taxpayers at a community college or vocational school qualify for the credit.
Student-Loan Interest
Parents may of course pay back a child’s student loans, as they often do. The IRS treats these types of transactions as if the parents gave the money to the child to pay off the debt. If the child is no longer claimed as a dependent, he or she can annually deduct up to $2,500 of student-loan interest paid by his or her parents, who themselves may not claim this interest deduction because they are not liable for the debt.
If you live in the New York or the Tri-State area and have any questions about any possible tax deduction, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
