College expenses are demanding, there’s no doubt about it. Thankfully with the right information, you can use that headache to your advantage. Through tax credits, you can decrease your overall tax amount.
Tax credits allow you to reduce the total amount of tax you owe, due to educational expenses.
American Opportunity Credit
- The first $2,000 spent on education can be reclaimed as tax credit, as well as 25% percent of the next $2,000.
- Yearly credit per student cannot exceed $2,500.
- For 2009, students from a disaster area of the Midwest may claim special credits capping at $3,600.
- Credit has been extended to educational cost of the four years of college.
- In order to claim $2,500 in credit, single filers must make less than $80,000, while joint filers must make less than $160,000. Single filers making $80-90,000, and joint filers making $160-80,000, are eligible for a reduced Credit rate.
- Expenses within the Tax credit include fees, tuition, and required materials such as computers and books.
- Student must attend at least half time for tax credit to apply.
- If the tax you owe is lower than the credit claimed, you may receive up to $1,000 of the excess.
Lifetime Learning Credit
- Lifetime learning provides a credit rate of up to $2,000—One fifth of the initial $10,000 payment.
- Students in Midwestern disaster areas may receive up to $4,000—for the year 2009 only.
- Credit is extended as long as college education lasts—both graduate and post-graduate.
- Single filers with an income under $50,000, and joint filers with an income under $100,000 can claim up to $2,000 in credit. If single filers make $50-60,000 or joint filers make $110-120,000, a smaller credit is available.
- Valid expenses for this credit include school tuition, materials required for job-related classes, and school fees.
- Lifetime Learning Credit can be claimed if your family has one person in a college or job-related class in the course in the year. “Family” here means the taxpayer’s spouse and all dependents.
Credit Guidelines
- The American Opportunity Credit and the Lifetime Learning Credit cannot be taken for the same student, at the same time.
- Both the Lifetime and American Opportunity Credits must be used at an eligible school. Almost every public, nonprofit, postsecondary school is classified is considered to be eligible.
- People who are dependents do not qualify for credits.
