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College Tax Benefits

With the fall semester coming to a close, it’s important for parents and students to think about tax benefits that can help with college expenses. There are two college tax credits that can apply to students enrolled in an eligible college, university, or vocational school: the American Opportunity Tax Credit and the Lifetime Learning Credit.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) can be worth a maximum annual benefit of $2,500 per eligible student. It is only available for the first four years at an eligible college or vocational school. You can claim the AOTC for a student enrolled in the first three months of 2018 as long as you paid qualified expenses in 2017. If claiming the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) can have a maximum benefit of up to $2,000 per tax return for both graduate and undergraduate students. The limit on the LLC applies to each tax return not to each student. It is available for an infinite number of years.

To claim the AOTC or LLC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Form 1098-T, Tuition Statement, is required to be eligible for an education benefit. Students can obtain this form from their current school.

Other education benefits

  • Student loan interest deduction of up to $2,500 per year.
  • Scholarship and fellowship grants. Generally, these are tax-free if used to pay for tuition, required enrollment fees, books, and other course materials, but taxable if used for room, board, research, travel, or other expenses.
  • Savings bonds used to pay for college. Though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years of age.
  • Qualified tuition programs, also called 529 plans, are used by many families to prepay or save for a child’s college education. Contributions to a 529 plan are not deductible, but earnings are not subject to federal tax when used for the qualified education expenses.

Keep A Copy of Tax Returns

You should keep a copy of your tax return for at least three years. When applying for college financial aid, a tax transcript may be needed.

For more information on education tax credits, always consult a Certified Public Accountant. Submitted by: Dennis Gallant, Senior Manager, Tax Services, Thomas Howell Ferguson P.A. CPAs, (850) 668-8100, dgallant@thf-cpa.com.

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