The cost of education is always rising. However, if you are someone who wants to grow your knowledge base you will be happy to know that education tax deductions and credits can help you with the costs of your education.
One of the tax credits is the American Opportunity Credit and another is the Lifetime Learning Credit. These credits allow you to reduce your tax dollars, dollar for dollar when you claim educational expenses on your federal tax refund.
American Opportunity Credit
This credit allows you to reduce your taxes up to a maximum of $2,500 per student for the educational expenses endured for the first four years. However, students have to attend at least part time and not have been convicted of a felony drug crime.
Various things qualify for this tax credit such as books, equipment, supplies, tuition, and other school related fees. In the event that your taxes are less than $2,500, the refund cut off amount is $1,000. However, those who make more than $80,000 or couples who make more than $160,000 will receive a low credit amount. The phase out limit for the credit is $90,000 in income or $180,000 for couples.
Lifetime Learning Credit
You do not have to be actively pursuing a degree in order to claim this credit. This credit is for anyone who is taking a course to further his or her education. It covers required tuition, equipment, and books. It allows you to claim a maximum amount of $2,000 on each tax return however; if the amount granted is more than your tax bill, you will not receive a credit in the form of a refund.
Additionally, the phase out limit is $66,000 or $132,000 for couples. Those who make more than $56,000 or couples who make more than $112,000 will receive a lower credit amount.
Educational Tax Deduction
Tuition and fees deduction, student loan interest, work related education, scholarships and fellowships can allow you to ease some of your educational financial strains too.
Tuition and Fees Deduction
If you are unable to claim the Lifetime Learning Credit because of the phase out limit, you can claim the Tuition and Fees Deduction of up to $4,000. This is true even for taxpayers who do not itemize their tax returns. As long as you do not make more than $80,000 or $160,000 for couples you are eligible. However, you are unable to claim both a credit and a deduction simultaneously.
Student Loan Interest
Even if you do not itemize your deductions, you can deduct your student loan interest on your taxes. This deduction does not phase out until $2,500 per tax return. However, you must not exceed $60,000 in income or $125,000 if you are married. Furthermore, if you have cash in a US savings bonds to pay for your education the interest is tax-free as long as the cash is used for your education.
Try the Education Tax Credits Calculator
The Education Tax Credit Calculator will give you an accurate view of how much you could be entitled to. Just answer some simple questions regarding your income and your living circumstances and you’ll get a readout on how much you may be eligible for.
Work Related Education
If you are going back to school due to your job, you may be eligible to claim this itemized tax deduction. However, you have to prove that the education was to maintain or improve your work skills or a requirement from your employer. However, this deduction is not for those who have to do it to land a new career.
Scholarships and Fellowships
If you receive a scholarship or a stipend for a fellowship, it is tax-free if you use the funds for tuition, supplies, or other school related expenses. You do have to be a degree candidate though.
If you are a student, you should file your taxes online. They will make sure you get the credits or deductions that you qualify for in addition to making sure that you receive the largest tax refund possible.