Tax Credits Can Defray Higher Education Costs
With the costs of higher education spiraling upward each year, most parents are searching for strategies to minimize the impact of sending their children off to college. A trip to see the local banker has often been one of only a few options available to families, and this usually resulted in a second mortgage promissory note. However, in recent years, tax professionals have also become useful in these situations. As the IRS has implemented tax breaks aimed at helping working families fund, the tax preparer-whether a CPA or a registered enrolled agent-has become an increasingly important advisor on the topic of finding funds to defray the costs of higher education. By virtue of continuing education tax requirements mandated by the federal government, enrolled agents are some of the most informed professionals on the topic. Tax CPE courses across the country are devoted to educating tax professionals like enrolled agents on many of specific tax avenues available to parents with kids bound for college.
As enrolled agents, CPAs and other tax preparers gear up to work with this particular clientele, there are two federal tax credits that are available to help individuals offset the costs of higher education either for themselves or their dependents-the American Opportunity Credit and the Lifetime Learning Credit.
General Requirements
Below are a number of the more important considerations around qualifying for either credit:
– individuals must pay post secondary tuition and fees for themselves, spouses or dependents
– the credit may be claimed by the parent or the student, but not by both
– if the student was claimed as a dependent, the student cannot file for the credit
– only one of the credits in a single tax year can be claimed per
– parents paying college expenses for two or more students in the same year are eligible for the credits on a per-student, per-year basis
The American Opportunity Credit
Below are some key facts that tax professional should know about the American Opportunity Credit
– the credit can be up to $2,500 per eligible student
– it is available for the first four years of college
– 40 % of the credit is refundable, meaning that a taxpayer could receive up to $1,000
– eligible students must be seeking a undergraduate degree and must be enrolled at least half time for one year
– qualified expenses include tuition and fees, books and equipment
– full credit is typically available when taxpayers make less than $80,000 or $160,000 for married couples filing a joint return
Lifetime Learning Credit
Here are several facts about the Lifetime Learning Credit that the IRS suggests tax professionals understand and communicate to clients:
– the credit can be up to $2,000 per eligible student
– is available through college and for courses to acquire or improve job skills
– the maximum credited is limited to the amount of tax paid on return
– no degree or other recognized education credential is required
– qualified expenses include tuition and fees, books and equipment
– the credit is available to taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return
– given the growing popularity of education credits, EA CPE and tax continuing education courses are rapidly including these and other details into their course curriculum
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.