If you have children who are or going to be in college, it will soon be time for you to start paying semester fees. And this means you can claim a tax credit based on your payment in your tax returns next year. Here are some tax benefits for you. Click here to read or watch more IRS Help resources.
The most important thing to do would be to keep your receipts as they are to be used to claim tax credits for you, your spouse or a dependent. You can claim a credit of up to $2,500 on the amount you pay for each child who is studying in post-high school tertiary education. And the good thing is the credit involves not only tuition fees but also other college-related expenses like books, supplies, and equipment.
Even if you are not taxable, you can benefit from this credit by 40% of the amount paid. This means you can receive a payment of up to $1,000 even though you do not pay taxes. To be eligible for this tax benefit, your modified adjusted gross income must be $80,000 or less for individuals or $160,000 or less for married joint filers.
If you earn a modified adjusted gross income of $60,000 or less as an individual or $120,000 if married and filing jointly, you are eligible to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses if you are a student enrolled in an eligible educational institution.
This benefit is available under The American Opportunity Credit, which was originally part of the American Recovery and Reinvestment Act. The Act itself has been given an extension for two years more years i.e it now set to expire in 2012.
If you earn less than $75,000 in modified adjusted gross income or $150,000 for joint filers, then you may be eligible to deduct interest paid on a student loan used for higher education during the year. It can reduce your taxable income by up to $2,500, even if you don’t itemize your deductions.
Another college-related tax benefit comes in the form of the Tuition and Fees Deduction. Again, if you earn not more than $80,000 in modified adjustable gross income for individuals or $160,000 for married couples making joint filings, you may be eligible for this deduction. Under the Tuition and Fees Deduction benefit, you can reduce the amount of your income that is taxable by up to $4,000 even if you do not itemize your deductions.
But there are certain caveats to these tax benefits. You can choose to claim only one of the credits per student within a single tax year. However, if you have two or more students for whom you pay college fees in the same year, you can choose to take credits on a per-student, per-year basis. This means you can claim the American Opportunity Credit for a child just entering college and the Lifetime Learning Credit for another child already in the final year of studies.
Another condition is that you are not allowed to claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose either the credit or the deduction.