With the fee of college continuing to rise, many students
struggle to pay their tuition bills and loans.
The cost of colleges keeps rising higher and students have
to take the help of their parents for college expenses. Fortunately, IRS is
there to offer some relief from high tuition. There are several tax deductions
and credits available to college students that can help pay for educational
expenses.
Whether you are hiring some local tax services in California
or doing on your own, in this blog post, we are sharing two main tax breaks
available for students which help in educational expenses.
Tax credit
There are mainly two important tax credits for college
students. The American Opportunity Tax Credit (AOTC) (which was formerly known
as Hope Credit), and the Lifestyle Learning Credit (LLC). The prior is only
available for the first four years of higher education, whereas the later has
no limit to the number of years, so it can be applied to any professional
degree course.
The AOTC provides a maximum credit of $2500 per student. The
credit equal to 100% of the first $2,000 you spend on qualified education, plus
25% of the next $2,000. This total $2500 credit is also refundable up to $1000
that means you could also qualify to get up to, $1000 as a refund. The LLC pays
a maximum credit of $2,000 per student, but it’s not a refundable credit. You
will not be liable to get anything extra after credit covers the tax liability.
Even if you are eligible for both AOTC and LLC, you have the
option to choose one only. So consider all the important factor related to your
education and choose that work best for you. Choose the one which will benefit
you more. To claim a credit, you have to be enrolled and paying qualified
educational expense like fees, book, and supplies. In general, the American Opportunity Credit
provides a bigger benefit as compare to lifestyle learning credit.
Tax deduction
The other type of tax break is the tax deduction for tuition
and fees. In this, you’re allowed to reduce your income by up to $4,000 in
college expenses as per your income. The good thing about tax deduction is that
you don’t have to itemise to take advantages since it counts as an adjustment
to your income. You can qualify for this if your filing status is other than
married filing separately. Besides that, you can’t take the tax deduction for
tuition and fees if someone else can claim you as a dependent.
The reason some people go for tuition and fees deduction
because it has a higher income threshold than the LLC, which makes it available
to more taxpayers. Again, though, you have to choose whether to go for tuition
and fees deduction or one of the two education credits. The credit usually
provides more tax benefits but there are times when the tax deduction can come
in handy.
