As summer nears its end, students across the country will be heading back to school. If you're one of those pursuing higher education, you may be carrying more than just books, in the form of significant tuition bills and rising student loan interest. So, what can you do to lighten the load? Take advantage of education deductions and credits come tax time.
What is available to you? To start, there are a dozen tax breaks, credits, deductions and other education related tax benefits available. One of the most beneficial and easy-to-get tax credits is the American Opportunity Credit. Not only popular, this $2,500 per student credit is unique. Sixty percent of the credit is a traditional nonrefundable credit, which means it can be used to offset your taxes, and the remaining 40 percent is refundable, which means you can receive this portion of the credit as a refund. Be sure to take advantage of this credit and increase your refund. It can really make a difference in covering education costs.
How do you get it? You must have paid tuition and related expenses to a qualified college, university or trade school. The credit can be claimed for the first four years of postsecondary education (education received after high school) for each student, provided that the student is enrolled at least half-time in a certificate or degree program and has not been convicted of a felony drug offense. Allowed expenses include tuition, required fees and the cost of required books and software for courses.
If you are not eligible for the American Opportunity Credit, you may be able to claim the Lifetime Learning Credit. This is a nonrefundable credit of up to a total of $2,000 per tax return. The credit is available for ANYONE who is taking classes. It does not have the same strict criteria as the American Opportunity Credit. The credit is limited to 20 percent of the tuition and required fees paid to attend a qualified college, university or trade school. Students that are taking classes at less than half-time, take only a few classes, are maintaining or improving job skills or just want to learn may be able to claim this credit. The Lifetime Learning Credit has no limit on the number of years a student is in school and does not require students to meet an attendance status. But, keep in mind that a taxpayer cannot claim both a Lifetime Learning Credit and American Opportunity Credit for the same individual in the same year.
In addition, taxpayers may be able to deduct up to $2,500 of student loan interest paid during the year. The student loan must be for the taxpayer, their spouse or an individual who was a dependent at the time the loan originated. The student must have attended a qualified institution and attended for half-time or more.
If you cash in your savings bonds to pay for education, the interest earned is tax-free. The savings bonds must be in the student's name or their parent's if they can be claimed as a dependent. The proceeds can be used to pay for tuition and fees at a qualified college, university or trade school.
If you or someone you know has higher education costs, look to the tax rules to get some much deserved tax relief and possibly a bigger tax refund this coming tax year. Let your education help you make the most out of tax time.