With everyone back in school and taking classes, it’s important to know that going back to school and getting your degree can have some tax benefits. The IRS understands the financial toll higher education can have and created a few tax credits in hopes of lessening that burden. Taxpayers who pay for higher education in 2019 can see these tax savings when they file their tax returns in April of 2020. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.
The first tax credit is the American Opportunity tax credit. To be able to claim the American Opportunity Tax Credit, you must receive Form 1098-T from an eligible educational institution. The tax credit is worth up to $2,500 per eligible student. It is only available to you for the first four years at an eligible college or vocational school. The credit is meant to help students pursuing a degree or another recognized education credential. If you don’t owe a lot in taxes, the tax credit is partially refundable. This means that if you don’t owe any taxes when you file, part of that tax credit can be added to your tax refund and up to $1,000 of the tax credit is refundable. The tax credit is meant to cover tuition and required fees for your enrollment into any eligible post-secondary educational institution. If you are a being claimed as a dependent on someone else’s tax return, you cannot claim the tax credit.
The other tax credit is the Lifetime Learning Credit. The tax credit is worth up to $2,000 per tax return per year, no matter how many students qualify for the credit. Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit is available to you for all the years of postsecondary education and for course to acquire or improve your job skills. This means if you take more than four years to finish your degree, you can still take the tax credit as it is available for an unlimited number of tax years. The Lifetime Learning Credit, however, is nonrefundable. Meaning if you don’t owe any taxes, you won’t get any money back from the credit, whatever you don’t use of the $2,000, you will lose. With the Lifetime Learning credit you also don’t have to be pursuing a degree like you do to qualify for the American Opportunity credit.
Both these tax credits are available to qualifying students of higher education. Both help offset the costs of pursuing a degree. You can claim this tax credit by filling out Form 8863, Education Credits. If you need help filing your federal tax return or need advice on which tax credits you should be claiming, call Polston Tax. We can help you save money on your taxes while keeping you compliant with the IRS. Give us a call at 844-841-9857 or click below to schedule a free consultation.