WHOPPEE – its tax time again! As you start to gather your 2011 tax documents, don’t forget to include your education costs or the interest paid on federal student loans. There are also two tax credits this year, so more opportunities for savings. Of course, you cannot “double dip”, claiming more than one credit or deduction for the same expense, so do your homework and make sure you take advantage of the most advantageous choice for you!
The American Opportunity Tax Credit (AOTC) replaced the HOPE tax credit and provides additional benefits, extending coverage from the first two years to college to four years, covering text books and AOTC is partially refundable (40% or $1,000 maximum). This means that, even if you do not have a federal tax liability, you might still qualify for a refund. To claim your credit, you must use form 8863 and attaché to your 1040 or 1040A. At this time, this credit will expire at the end of 2012.
The Lifetime Learning Credit remains in place for 2011 and can create a tax credit of up to $2,000 for any level of college education (even graduate school). One unique feature of this credit is that it doesn't require a minimum level of enrollment. However, the Lifetime Learning Credit has a narrower income range compared to the tuition deduction, so you need to look at all options before deciding which tax credits or deductions to submit.
Here are some key facts the IRS wants you to know about these valuable education credits:
1. The American Opportunity Credit
• The credit can be up to $2,500 per eligible student.
• It is available for the first four years of post-secondary education.
• Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
• The student must be pursuing an undergraduate degree or other recognized educational credential.
• The student must be enrolled at least half time for at least one academic period.
• Qualified expenses include tuition and fees, coursed related books supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.
2. Lifetime Learning Credit
• The credit can be up to $2,000 per eligible student.
• It is available for all years of postsecondary education and for courses to acquire or improve job skills.
• The maximum credited is limited to the amount of tax you must pay on your return.
• The student does not need to be pursuing a degree or other recognized education credential.
• Qualified expenses include tuition and fees, course related books, supplies and equipment.
• The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.
A Few Final Reminders: You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
For more information, visit: http://www.irs.gov/newsroom/article/0,,id=218389,00.html or
Finally, watch for the 2011 edition of the IRS Publications, referencing Education Tax Credits. As of January 9, 2011, the link still gave 2010 information. (http://www.irs.gov/pub/irs-pdf/p970.pdf )