Grants, scholarships and financial aid are all useful for handling the very real costs of a college education, but don’t sleep on tax credits and deductions. Both college students and parents of college students can take advantage of tax breaks that can mean thousands of dollars of savings on tuition, fees, books, and supplies.
Here are some of the best college-related tax credits, deductions and other tax breaks that you may be able to take.
American Opportunity Tax Credit
The American Opportunity Tax Credit allows you to lower your income tax bill by up to $2,500 per student, per year on undergraduate tuition, fees and books. Room and board, though, don’t count.
But you can only claim this tax credit for four years, said Meagan Landress, a student loan consultant for Student Loan Planner. To claim the credit, fill out IRS Form 8863 with your tax return.
Who qualifies: Undergraduate college students who file their own tax returns or parents who pay the college tuition costs for children listed as dependents on their tax return qualify for the credit.
To earn the credit, your modified adjusted gross income (MAGI) must be below $80,000 if you are filing your tax return as single or as head of household or less than $160,000 if you are filing jointly. You can also get a reduced credit if your MAGI is between $80,000 and $90,000 as a single filer/head of household or between $160,000 and $180,000 as a joint filer. You can calculate your MAGI here.
Lifetime Learning Credit
The Lifetime Learning Credit is similar to the American Opportunity Tax Credit, but structured differently. It allows you to claim 20% of the first $10,000 you paid for tuition and fees in the previous year. Once again, tuition, fees, books and equipment count, but room and board don’t.Continue reading
