College Tuition Tax Breaks

Looking at a college tuition statement for the first time can be a scary experience. The cost of higher education continues to climb. The average annual cost for tuition and board at a public in-state school is now $20,770.00 and $46,950.00 at a private four-year college according to College Board. Luckily, the IRS has three different credits/deductions that you can use to lessen the burden at tax time.

The three credits/deductions available for the 2018 tax year are the American Opportunity Credit (AOC), the Lifetime Learning Credit (LLC) and the Tuition and Fees Deduction. All of these have their own guidelines on eligibility. Some of the factors involved include adjusted gross income (AGI), year in school, full or part-time student and whether the student is enrolled in a degree or certificate program.

The AOC can be worth as much as $2,500 per student for the first 4 years of undergraduate enrollment. The credit is worth 100% of the first $2,000 in qualifying expenses and 25% of the next $2,000. This is an actual dollar-for-dollar credit so it lowers the amount of federal tax due. If your tax liability is reduced below zero, $1,000 of the credit is refundable and you receive this as a refund even if you owe no taxes.

The LLC can be worth as much as $2,000 per tax return; this is not per student. The credit is worth 20% of qualifying expenses up to $10,000. This is also a credit so it lowers the actual amount of tax due. This credit is not refundable which means if the credit takes you below zero, your tax due is zero and the additional amount is not a refund to you.

The Tuition and Fees deduction can lower your taxable income by up to $4,000 in qualifying expenses per tax return; this not per student. This is a deduction so it lowers your taxable income and will save you an amount dependent on which tax bracket you are in.

It is a MUST to include the 1098T form from the educational institution when you give your accountant your yearly tax documents. This form should be available by visiting the student’s school account. You should also keep track of the cost for books, supplies and other equipment. There may be some questions your tax preparer will ask to decide which credit you can claim.

SBS CPA Group would like to wish all students a safe and successful school year! If you have any questions concerning this very important topic, please feel free to give us a call at 260-407-5000.

Lisa Hagar


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