U.S. TAX INFORMATION FOR STUDENTS

Credits

American Opportunity Credit

Under the American  Recovery and Reinvestment Act (ARRA), more parents and students qualify for a tax credit, the American opportunity credit, to pay for college expenses.

The American opportunity credit originally modified the existing Hope credit  for tax years 2009 and 2010, and was later extended for an additional two years –2011 and 2012, making the benefit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds  required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married  couples filing a joint return. The credit is phased out for taxpayers with  incomes above these levels. These income limits are higher than under the  existing Hope and lifetime learning credits.

Lifetime Learning Credit

The lifetime learning credit helps parents and students pay for post-secondary education.

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the Hope or American  opportunity credit and lifetime learning credits for the same student in one  year. Thus, the lifetime learning credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

Generally, you can claim the lifetime learning credit if all three of the following requirements are met:

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  1. You pay qualified education expenses of higher education.
  2. You pay the education expenses for an eligible student.
  3. The  eligible student is either yourself, your spouse or a dependent for  whom you claim an exemption on your tax return.

If you’re eligible to claim the lifetime learning credit and are also eligible to  claim the Hope or American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you  can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope or American opportunity credit for one student and the lifetime learning credit for another student in the same  year.

Deductions of Tuition and Fees

You may be able to deduct qualified education expenses paid during the year for  yourself, your spouse or your dependent. You cannot claim this deduction if  your filing status is married filing separately or if another person can claim  an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

The tuition and fees deduction can  reduce the amount of your income subject to tax by up to $4,000. This deduction,  reported on Form 8917 Tuition and Fees Deduction, is taken as an adjustment to  income. This means you can claim this deduction even if  you  do not itemize deductions on Schedule A (Form 1040). This deduction  may be beneficial to you if, for example, you cannot take the lifetime learning credit because your income is too high.

You may be able to take one  of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax.

 

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