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Tax credits can really help offset higher education costs

Posted on August 11, 2018

Higher education is expensive! If you have a dependent (or spouse) heading off to college this month, Teipen Selanders Poynter & Ayres CPAs heartily recommend you keep good records of what you spend.

That’s because there are tax credits available to help you mitigate some costs when you file your tax returns. In many cases, this tax help applies to taxpayers, their spouses and/or their dependents taking post-high school coursework or accredited college classes on line.

Basically, there are two IRS credits available to help taxpayers offset higher education costs; the American Opportunity Credit and the Lifetime Learning Credit. It pays to know the difference between the two credits and how they may be used.

Understanding the American Opportunity Credit:

  • Worth a maximum benefit up to $2,500 per eligible student
  • May only be used for the first four years at an eligible college or vocational school
  • For students pursuing a degree or other recognized education credential
  • Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.

The Lifetime Learning Credit:

  • Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students in your household qualify
  • Available for all years of postsecondary education and for courses to acquire or improve job skills
  • Available for an unlimited number of tax years (in other words, a lifetime)

The CPAs at TSPA caution that in order to be eligible to claim either the American Opportunity Credit or the Lifetime Learning Credit, the IRS requires taxpayers or their dependents to have received a Form 1098-T from an eligible educational institution.

 Most institutions have these forms readily available.

It pays to track higher education expenses for all your dependents. Your CPA can provide you with IRS Education Credit Form 8863 to verify and claim your credits next time you file your taxes.