Many parents struggle with college expenses. You might think that the IRS is an unlikely place to seek help with paying for college, but did you know that there are some significant tax benefits available for college?
According to a recent agency release, there are two specific college tax credits you or your dependent children may qualify for:
- The American Opportunity Tax Credit, (AOTC) can be worth a maximum annual benefit of $2,500 per eligible student. The credit is only available for the first four years at an eligible college or vocational school for students pursuing a degree or another recognized education credential. Taxpayers can claim the AOTC for a student enrolled in the first three months of 2018 as long as they paid qualified expenses in 2017.
- The Lifetime Learning Credit, (LLC) can have a maximum benefit of up to $2,000 per tax return for both graduate and undergraduate students. Unlike the AOTC, the limit on the LLC applies to each tax return rather than to each student. The course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. The credit is available for an unlimited number of tax years.
Other College Tax Credits
The IRS also reminds taxpayers of these other college/educational tax benefits such as:
- Student loan interest can be deducted up to $2,500 per year. However, beware of the income limitations.
- Scholarship and fellowship grants are generally tax-free when they are used to pay for tuition, required enrollment fees, books and other course materials. However, they are taxable if used for room, board, research, travel or other expenses. So, use these funds wisely.
- If you are using eligible savings bonds to pay for college, interest is usually tax-free (subject to income limitations) if bonds were purchased after 1989 by a taxpayer who, at the time of purchase, was at least 24 years of age.
- Pre-paid college plans. 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.
How MBAF Can Help
At MBAF we want to help maximize your tax strategies for your entire family. If you have children who are soon to be college bound, or are already enrolled, we can help you determine which of these benefits you may qualify for, as well as developing an income tax plan that can make paying for college as easy as possible for your given financial situation.
Maximizing tax breaks and benefits for college students can be complex. If you would like to benefit from our expertise in these areas or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting specialists, or call us at 1-800-239-1474.