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Financial Aid

3 Tax Breaks for College Students You Can’t Afford to Miss

College students, such as the male student typing on a netbook pictured here, have the opportunity to claim a number of IRS tax breaks on education-related expenses.Tax season is officially underway at the Internal Revenue Service. This means income tax returns that account for your earnings in 2017 are due by Tuesday, April 17, 2018.

If you’re one of the millions of college students pursuing a degree to launch or advance your career, you may be eligible to claim a few tax benefits that can help you reduce your bill to Uncle Sam and keep more of your money.

Let’s explore three of these key IRS tax breaks for education.

1. American Opportunity Tax Credit

The American Opportunity Tax Credit is an IRS benefit available to college students themselves, those who claim students as dependents on their income tax returns, or even spouses of students.

This credit is Worth up to $2,500 per year for each eligible student, and it can only be claimed for a student’s first four years of attending either a post-secondary college or university or a vocational school. Eligible students must be seeking a formal college degree or other recognized education-related credential.

Keep in mind that the AOTC is partially refundable, which means you can claim up to $1,000 of the credit, even if you do not owe any tax.

Those who claim this credit cannot earn more than $80,000 as single filers or $160,000 for couples who file joint tax returns. The credit is phased out when modified adjusted gross income amounts reach these levels.

2. Lifetime Learning Credit

The Lifetime Learning Credit is worth up to $2,000 per tax return, per year. This is regardless of the number of students who qualify for it. So, if two parents have two or three dependents in college, they can only receive up to this $2,000 maximum value in total, not $2,000 per student.

The nice perk of the Lifetime Learning Credit is that it is available for all years in which a student is enrolled in a post-secondary educational institution, unlike the four-year limit to the AOTC. It also applies to expenses related to courses one takes to learn or improve upon skills within a particular trade.

Modified adjusted gross income limits for this credit are $65,000 for individual filers and $130,000 for joint filers.

Important notes about the American Opportunity Tax Credit and the Lifetime Learning Credit:

  • Taxpayers must use Form 8863, Education Credits, to claim these two tax credits
  • Students must have a copy of Form 1098-T, Tuition Statement to claim any education tax breaks. Students can obtain this form from their school.
  • Only qualified expenses paid by a student or taxpayer claiming the student as a dependent can be factored into claiming these credits. Qualified expenses include tuition, fees, and other necessary expenses for a student to successfully attend an institution of higher education.
  • The American Opportunity Tax Credit and Lifetime Learning Credit cannot be claimed for the same student in the same year for the same expenses. Only one of these credits can be claimed for a studen’ts expenses in a given year.

3. Tuition and fees deduction

The tuition and fees deduction is a tax write-off designed to reduce your income tax by up to $4,000 for eligible education expenses that you, your spouse, or a dependent incurs within higher education.

You must use Form 8917, Tuition and Fees Deduction to report and claim this tax break.

This write-off is taken as an adjustment to income. This means you can claim it, even if you don’t itemize your deductions on Schedule A of Form 1040.

Like most tax breaks, there are income limitations. You can only claim this deduction if your modified adjusted gross income is less than $80,000 for single filers and $160,000 for joint filers. Married couples who file separate tax returns are not eligible.

Remember that you can’t claim this write-off if you’re already using one of the other education-related tax credits for the expenses for a student in a given tax year.

Further Reading

For more details on these IRS tax breaks for education, check out this page on the IRS website for a detailed explanation and examples of each tax break.

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