1) American Opportunity Tax Credit – Did you attend college for an undergraduate degree in 2016? Then you may be eligible for the American Opportunity Tax Credit. The credit is available up to $2,500 for qualified tuition, fees, and course materials. Also up to 40% of this credit is refundable. This means that even if you do not owe any taxes this year you will still be eligible for a refund of up to $1,000.
The credit may not be available if you are single and have income over $90,000 or if you are married and have income over $180,000. Other limitations apply; you should check with your tax preparer to see if you qualify. Another thing to consider is that the credit is also only available for the first four years of post-secondary education.
So what if you’re in grad school? You may not be out of luck!
2) Lifetime Learning Tax Credit – The Lifetime Learning Tax Credit is available for all years of post-secondary education and for courses to acquire or improve job skills. The credit is available up to $2,000 per tax return for qualified education expenses including tuition, certain expenses related to enrollment, and non-refunded expenses following a withdrawal from classes. The credit may not be available if you are single and have an income over $65,000 or if you are married and have an income over $131,000. The credit is available for an unlimited amount of years and can be useful for adults returning to college or a trade program. Other limitations apply. You should check with your tax preparer to see if you qualify.
Both of the aforementioned credits can be helpful in reducing taxes when enrolled in a higher education program. However, only one of these credits may be elected in any one year for each applicable student. For example, if you elect to claim the Lifetime Learning Credit and you are also eligible for the American Opportunity Credit in the same year, you can choose to claim one or the other, but not both. If you are a parent claiming these credits for your dependents you may elect one credit for one child and the other for a second child.
What if you are a recent college graduate? There is something here for you too!
3) Deduct Your Student Loan Interest – If you have recently graduated and began paying back your student loans you may be able to deduct your student loan interest. Your loan provider should have made available to you a 1098-E form if you paid $600 or more in student loan interest during the year. If not, you can still find the amount of interest you paid on your annual statement or on your loan provider’s website. This deduction may reduce the amount of your income subject to tax by $2,500. This deduction may not be available to you if you are single and your income is over $80,000 or if you are married and your income is over $160,000. Other limitations apply, you should check with your tax preparer to see if you qualify.
Financial Planning Associate