The answer is: It depends! Currently the IRS has three different options that taxpayers can take advantage of to off-set the cost of college education expenses.  The three options are:

  1. The American Opportunity Credit
  2. The Lifetime Learning Credit
  3. Tuition and Fees Deduction

Each choice has its own guidelines for which they can be claimed. Below is a brief summary of each:

The American Opportunity Credit (Typically the best option)

  • This is a 40% refundable tax credit with a max credit of $2,500 per eligible student.
  • Is available only if the student has not complete four years of postsecondary education.
  • Student must be pursuing a program leading to a degree or other recognized educational credential.
  • Student must be enrolled at least half time for at least one academic period beginning in the tax year.
  • The taxpayers modified adjusted gross income (MAGI) must be below $180,000 married filing joint ($90,000 if single, head of household, or qualifying widow(er).
  • Qualified expenses include: tuition, required enrollment fees, and course materials.
  • Form to file IRS Form 8863 – Education Credits.
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

 

The Lifetime Learning Credit

  • This is a non-refundable tax credit with a max credit of $2,000 per eligible student.
  • It can be claimed and unlimited number of times by a taxpayer.
  • Student does not need to be pursuing a degree or other recognized educational credential.
  • The taxpayers modified adjusted gross income (MAGI) must be below $128,000 married filing joint ($64,000) if single, head of household, or qualifying widow(er).
  • Qualified expenses include: Tuition and fees required for enrollment or attendance.
  • Form to file: IRS Form 8863 – Education Credits.
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

** Typically the best option if the American Opportunity Credit cannot be claimed.

 

The Tuition and Fees Deduction

  • This is a for adjusted gross income (AGI) deduction with a max deduction of $4,000 per eligible student.
  • It can be claimed and unlimited number of times by a taxpayer.
  • Student must be enrolled at eligible educational institution for one or more courses.
  • The taxpayers modified adjusted gross income (MAGI) must be below $160,000 married filing joint ($80,000) if single, head of household, or qualifying widow(er).
  • Qualified expenses include: Tuition and fees required for enrollment or attendance.
  • Form to file: IRS Form 8917 – Tuition and Fees Deduction.
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

** Typically used if neither credit can be claimed.

For more information and different tax strategies that can be used to maximize the benefit from the above credits and deduction please give Paresky Flitt & Company, LLP a call at (508) 650-1122.

Written by Ryan Godfrey

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