I’m just over here doing my best Billy Madison impression singing, “Back to school, back to school…”
With school back in session, parents and students should look into tax credits that can help with the cost of higher education. Because, it’s for sure not cheap. Many students graduate college with 6 figures of student debt!
These tax credits work by reducing the amount of tax someone owes on their tax return. If the credit reduces tax to less than zero, you may even get a refund! Woot woot!
People who pay for higher education can see these tax savings when they file their tax returns. If you, your spouse, or children take post-high school coursework, you may be eligible for a tax benefit.
There are two credits available to help taxpayers offset the costs of higher education. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of income tax owed.
To be eligible to claim the American Opportunity Tax Credit, or the Lifetime Learning Credit, you or a dependent must have received a Form 1098-T from the eligible educational institution.
The American Opportunity Tax Credit is:
- Worth a maximum benefit up to $2,500 per eligible student.
- Only for the first four years at an eligible college or vocational school.
- For students pursuing a degree or other recognized education credential.
- Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.
The Lifetime Learning Credit is:
- Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.
- Available for all years of post-secondary education and for courses to acquire or improve job skills.
- Available for an unlimited number of tax years.
The only catch is that there are income limits to each credit. You can qualify for a portion of the AOTC if you are married and your income is less than $180,000 ($90,000 if single), and you can qualify for a portion of the LLC if you are married and your income is less than $138,000 ($69,000 if single).
Candace is the founder of NewWay Accounting and is a CPA who specializes in working with fellow entrepreneurs. She strives to take the fear and anxiety out of taxes and help empower small business owners to feel more confident and in control of their finances.
