Your federal tax return is due April 18. Be sure to claim any of the 4 educationally-related tax benefits for which you qualify. They help reduce the taxes Americans pay by over $18 billion a year; so they’ll help you cut costs today and give you more to apply toward next year’s educational expenses.
Two personal tax credits — amounts subtracted from income taxes you’d otherwise pay — apply to learning after high school:
(1) American Opportunity Credit: Get a credit of up to $2,500 per student paid in 2016 for a student’s “Qualified Educational Expenses” while he worked toward his degree or certificate. This credit is limited to 4 tax years or the student’s first 4 years in postsecondary education. Forty percent of it is refundable — i.e. you’ll get money back even if you made too little to pay federal income taxes.
(2) Lifetime Learning Credit: This credit covers up to $2,000 you paid toward each student’s “Qualified Educational Expenses” in 2016. The student’s coursework need not have counted toward a degree or certificate. Also, there’s no limit on the number of years for which this credit is available. However, it’s not refundable.
Your student’s school should have provided him with a Tuition Statement (IRS Form 1098-T) showing tuition and fees paid to help you claim these credits.
There are also two educational deductions that’ll reduce your federal taxable income:
(3) Student Loan Interest Deduction: Deduct up to $2,500 of the interest you paid on certain loans you borrowed for “Qualified Educational Expenses” paid while you worked at least half-time toward a degree or certificate. You may deduct simple interest, capitalized interest, and any origination fees you paid in 2016.
If you paid $600 or more in student loan interest, your lender should have sent you a Student Loan Interest Statement (IRS Form 1098-E) to help you claim this deduction.
(4) Tuition and Fee Deduction: Reduce your taxable income by up to $4,000 for what you paid toward a student’s 2016 postsecondary tuition and required fees.
To be eligible for each tax benefit described above, your “Modified Adjusted Gross Income” must be below a certain amount. In all cases, the student must be you, your spouse, or a dependent you count as a tax exemption. And except for the Student Loan Interest Deduction, you may only claim only one of these benefits for any tax year.
There’s lots more information about these tax benefits — including information about Qualified Educational Expenses and Modified Adjusted Gross Income — in IRS Publication 970. Look it over, and don’t miss out on the tax benefits to which you’re entitled during or after college!