Putting one or more children through college in today’s world can be very stressful and extremely expensive. That said, there are some tax benefits that could help offset college-related costs if you and your child/student qualify.
The first is the American Opportunity Tax Credit, which is available for the first four years of college education and can total up to $2,500 per student. The credit can be used to reduce your tax liability. In addition, up to 40% of the credit can be used as a refund. So, if you qualify for the full credit, you can receive a refund of up to $1,000 even if you owe no taxes. Expenses that are eligible include: fees and tuition, school-related books, equipment and other school-related supplies.
The second credit is the Lifetime Learning Credit. Through this credit, up to $2,000 of qualified education expenses can be claimed and the credit is available for as long as the student is in school.
The catch here is that you can only utilize one of these credits each year. That said, you are able to use different credits for different students so if you have two children in college, you can use the American Opportunity Tax Credit for one and the Lifetime Learning Credit for the other if it is beneficial to do so.
The other possible deduction for some individuals is the Student Loan Interest Deduction. If you are making payments on a qualified student loan, you may be able to reduce your taxable income by up to $2,500 by utilizing this deduction. You will not need to itemize deductions to use this.
All of these options are tied to limitations on income so be sure to check with your tax professional to determine whether you are eligible for any of these credits or deductions. Give us a call at 916-576-7050 if you have questions or would like more information.