The Internal Revenue Service has provided college students and parents with some tips that can decrease the burden of high tuition and school expenses. These tax benefits may apply to you, a spouse, or a dependent for whom you claim an exemption.
1. American Opportunity Credit
This tax credit is valid for 2011 and 2012. With this credit, up to $2,500 may be applied per student. Additionally, up to $1,000 is refundable even if you don’t owe any taxes. This credit can be used for expenses like tuition, required books, school supplies and equipment. The maximum credit is usually awarded to those whose modified gross income is less than $80,000 or $160,000 for married couples.
2. Lifetime Learning Credit
This year, a Lifetime Learning Credit of up to $2,000 may be used for educational expenses per student, with no cap on the amount of years a student is enrolled in higher education. To qualify for this credit, gross income must be less than $60,000 or $120,000 for married couples.
3. Tuition and Fees Deduction
In 2011, up to $4,000 can be deducted from your amount of taxable income. This deduction can be used for higher education expenses for each student and generally can always be claimed if your gross income is less than $80,000 or $160,000 for married couples.
4. Student Loan Interest Deduction
This deduction allows interest paid on student loans during the year to be deducted from taxable income, up to $2,500. To be eligible for this deduction, your gross income must be less than $75,000 or $150,000 for married couples.
You may only choose one of the credits offered per student, per year. However, if you are supporting more than one student, you may choose a different credit for each student. The Tuition and Fees Deduction may not be claimed for the same student, in the same year, that is already using the American Opportunity Credit for the Lifetime Learning Credit. Chose either the credit or the deduction after deciding which is more beneficial to you.
For more information, visit the Tax Benefits for Education Information Center at www.irs.gov or check out Publication 970, Tax Benefits for Education, which can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).