Are you planning to pay for college in 2016? If so, money you paid for higher education can mean tax savings on your tax return when you file next year. If you, your spouse or your dependent took post-high school coursework last year, you may be able to take advantage of education credits that can help you with the cost of higher education. Taking advantage of these education tax credits can mean tax savings on your federal tax return by reducing the amount of tax you owe. Here are some important facts you should know about education tax credits, as provided by your northern Colorado tax accountants:
American Opportunity Tax Credit:
- You may be able to claim up to $2,500 per eligible student.
- The credit applies to the first four years at an eligible college or vocational school.
- It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
- It is available for students earning a degree or other recognized credential.
- The credit applies to students going to school at least half-time for at least one academic period that started during the tax year.
- Costs that apply to the credit include the cost of tuition, books and required fees and supplies.
Lifetime Learning Credit:
- The credit is limited to $2,000 per tax return, per year.
- The credit applies to all years of higher education. This includes classes for learning or improving job skills.
- The credit is limited to the amount of your taxes.
- Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.
The Tuition and Fees Deduction Is:
- Claimed as an adjustment to income.
- Claimed whether or not you itemize.
- Limited to tuition and certain related expenses required for enrollment or attendance at eligible schools.
- Worth up to $4,000.
The following applies to all three credits and deductions as well:
- The credits apply to an eligible student. Eligible students include you, your spouse or a dependent that you list on your tax return.
- You must file Form 1040A or Form 1040 and complete Form 8863, Education Credits, to claim these credits on your tax return.
- Your school should give you a Form 1098-T, Tuition Statement, by February 1, 2017, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
- You can’t claim either credit if someone else claims you as a dependent.
- You can’t claim either AOTC or LLC and the Tuition and Fees Deduction for the same student or for the same expense, in the same year.
- The credits are subject to income limits that could reduce the amount you can claim on your return.
- Use the Interactive Tax Assistant tool at IRS.gov to see if you’re eligible to claim these education tax credits.
Even if you can’t take advantage of any of these tax credits, there could be other education-related tax benefits that you can claim. Call our CPA office if you have any questions. We provide tax accounting, preparation, and planning services for folks throughout Fort Collins, Loveland, and Greeley.