Did you know the US government wants to give you thousands of dollars for college?
Did you know there are four different ways they will give you money back on your taxes for college expenses?
Did you know you can claim student loans – even if you haven’t even started paying them back yet – to qualify to get these benefits?
Well, you do now!
There are four ways to deduct your education expenses on your tax return:
* The American Opportunity Credit
* The Lifetime Learning Credit
* The Tuition and Fees Adjustment
* Employee Business Expense Itemized Deduction
Each of these opportunities has different rules, each offers different savings on your taxes and each appears on a different area of your tax return. The one thing they all have in common is Form 1098-T.
Form 1098T is the tuition statement each college and university is required to send every student every year. The form details the student’s name, school name and ein (identifying number), tuition billed or amounts paid, scholarships or grants paid to the school on behalf of the student, and any adjustments made for a prior year.
The tax preparer for the parents of the student (unless the student does not have parents or guardians who support them) uses this information, entering it into the tax form that will give the taxpayer the best outcome. They also can add other items, depending upon which credit, adjustment or deduction they are taking, like fees, books, supplies or mileage, so it is a good idea to have this information available as well. The one thing that none of these tax benefits does anything with is room and board.
Any tuition that has been paid by a scholarship or a grant is not eligible for any of the deductions. However, any tuition and expenses paid for by student loans of any sort are. Student loans count as funds paid by the family or the student, and are eligible for all of the tax benefits.
One credit in particular, the American Opportunity Credit, is very generous. The maximum amount of the credit is $2500 per student. That can be enough to pay for a semester, or even a year, at a community college. Another feature of this credit is that at least 40% of it will be added to the taxpayer’s refund, even if the taxpayer does not have any tax liability.
The Lifetime Learning Credit is ideal for students who have already used their available four years of the American Opportunity Credit, but have continued in school, possibly to graduate school. It is also ideal for adult learners taking a class they are interested in. The Tuition and Fees adjustment works for this as well.
Employees who are taking classes to improve themselves for their jobs are able to take these expenses, including books, supplies and mileage, as employee business expenses on their itemized expenses, assuming they are able to itemize on schedule A.
