As summer begins to wind down, we all know what is right around the corner if not already here, the fall semester of college, of course! I can remember many moons (approximately 2 years) ago when I was in college, how exciting it was to head back to school after several months off. Parents - you also should be just as excited because you potentially have several exciting tax credits to look forward to.
The American Opportunity and Lifetime Learning credit are two credits that you may be eligible to receive if you are paying for your children’s educations. Credits are highly favorable since they reduce tax liability directly; however, please be aware that both credits cannot be claimed at the same time. Therefore, it is best to know the differences between the two credits to determine which one is more beneficial.
American Opportunity Credit
Between the two credits, this is the most favorable. You will be eligible to receive this credit if your child is in the first four years of post-secondary education and actively seeking a degree. The maximum credit per year is $2,500 per student, however this is limited based upon your Adjusted Gross Income. Up to 40% of this credit may be refundable if your education tax credits exceed your total federal income tax.
Lifetime Learning Credit
The maximum credit is $2,000 per year, per student, which may be limited based upon income. The benefit of this credit is that there is no limit on how many years this can be claimed. The downside is that this credit is not refundable.
If you are interested in learning more about education credits that are available to you, please reach out to anyone in our office.