College students may be eligible for the American Opportunity Tax Credit to help reduce their IRS tax liability.
It’s time for back-to-school savings in 2015! Over the next few weeks, we’ll take a closer look at the best ways to save money on college and other forms of education.
Today we examine the American Opportunity Tax Credit.
What is the American Opportunity Tax Credit?
The American Opportunity Tax Credit was first implemented as part of the American Recovery and Reinvestment Act of 2009.
This IRS tax credit can be applied to the expenses incurred in the first 4 years during which an individual attends an institution of higher education. The tax credit can be claimed on the income tax return of an individual taxpayer, a taxpayer’s spouse, or the dependent of a taxpayer, such as his or her child enrolled in college. Unlike a tax deduction that reduces taxable income, this tax credit reduces the amount of tax one owes.
How Much is the American Opportunity Tax Credit Worth?
The current value of the American Opportunity Tax Credit is up to $2,500 per qualifying student. The full value of the credit may be claimed every year for up to 4 years. Remember that the credit may only be applied to qualifying education-related expenses incurred by a student pursuing some form of higher education. Plus, you cannot claim this credit if you are claiming any other tax credits for higher education.
The credit can be used for course materials, such as textbooks, supplemental materials (i.e. workbooks, software, etc.), school supplies, and other items that students need to be successful in their college coursework. The credit also covers student activity fees that are required for enrollment.
Who Can Claim the American Opportunity Tax Credit?
Like other tax credits, this credit on education expenses has some restrictions on who can actually claim it when filing taxes with the IRS each year.
It is currently available to individuals whose modified adjusted gross income is up to $80,000 a year and $160,000 for married couples who file their taxes jointly. The credit is phased out for earners whose income exceeds these amounts. It’s also worth noting that 40% of the credit is refundable.
Learn about more tax credits for education by teaming up with 1-800Accountant today. Call 1-800-222-6868 or check out www.1-800Accountant.
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