Tuesday, February 17, 2015

A Guide to Educational Tax Credits / If you don't qualify for one credit, remain hopeful. You may qualify for another.

Kira Brecht for US News World Report writes: Going to college is expensive, but Uncle Sam is helping out. There are several types of education tax credits parents or students may qualify for to offset a portion of higher education fees. Unlike somebasic tax deductions, there are a variety of education tax credits that could apply to you. There are three different options, including the American Opportunity Tax Credit, the Lifetime Learning Credit and the tuition and fees deduction.

Many people aren't sure what they can qualify for or which tax credit is the most beneficial. "Don't be intimidated by the options. Just know there is probably a benefit you'll get after paying all those expenses," says Allison Flores, principal tax research analyst at The Tax Institute at H&R Block.
"These days, education is so expensive, and this will help anyone who has education expenses," Flores says.
Which college credit is best for you? Experts point to the American Opportunity Tax Credit as the most valuable credit, which is worth up to $2,500 per child. "This credit is dollar-for-dollar for the first $2,000 of a student's expenses, and then 25 percent of the next $2,000," Flores says.
"The American Opportunity Tax Credit is more generous, especially if you have a couple of kids in the first four years of college. If you have two kids in college, you could get $2,500 for each," says Lisa Lewis, certified public accountant at TurboTax and U.S. News My Money blogger.
The American Opportunity Tax Credit also allows students to include more school-related expensesthan the Lifetime Learning Credit, which only includes tuition and fees. What could be included under the American Opportunity credit? "Course-related books, supplies and maybe even a computer if it is a requirement of your enrollment. Keep receipts of related books or supplies," Lewis says.
What are the criteria to qualify? The student must be enrolled at least half time and pursuing a degree program. If you are taking a class for fun, that wouldn't qualify here. The American Opportunity credit is only available for four years per student, which also includes any years the former Hope Credit was claimed.
"A fifth-year senior wouldn't be able to claim the credit if it has been used in the previous four years," says Steve Ribble, founder of Tampa, Florida-based Guardian Accounting Group.
Also, to be eligible, the student must have no felony drug conviction as of the end of 2014. "If a kid has been busted for drugs, they'd be looking for the Lifetime Learning Credit," Ribble says.
There is an income requirement: Income cannot be over $90,000 if single and $180,000 for those married filing jointly. When it comes to filing time, this credit can be claimed for yourself, spouse or dependent. Most students are claimed as dependents by their parents. "In that scenario, the parent can claim the tax credit on their return," Flores says.
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