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TAX FACTS: Tax Credits Can Help Pay For College And Job Training

Courtesy of Tom Ploskonka — 

If you, your spouse, or your dependents are paying for college or job training, two federal tax credits may help offset the costs.

The American Opportunity Credit provides up to $2,500 a year to an eligible student for the first four years of higher education. To qualify, the student must be pursuing a degree or other recognized credential and must be enrolled at least half time for one academic period during the year. The credit can cover tuition, enrollment fees, textbooks, supplies, and equipment, whether or not the materials are bought from the educational institution. Forty percent of the American Opportunity Credit is refundable, which means a student owing no taxes could still receive up to $1,000.

The Lifetime Learning Credit can provide up to $2,000 for each year of post-secondary education or each year in which you take courses to acquire or improve job skills, regardless of whether you’re pursuing a degree or credential. The number of years is not limited, and the credit is available for as little as one course. Tuition and fees are covered, but books, supplies, and equipment are only eligible if provided by the educational institution. Since the Lifetime Learning Credit is not refundable, it is limited to offsetting taxes that you owe for the applicable year.

The following limitations apply to both credits:

1. You can only claim one of the credits per student in a given tax year (although you can claim a different credit for a different dependent in the same year).

2. If a student qualifies as a dependent, only the parent may claim the credit.

3. Both credits phase out if your modified adjusted gross income exceeds a specified level.

If you think you might qualify for one of these credits and would like more details, give us a call to discuss your situation.

 

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