For 2019, you may be eligible for the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit. In general, the AOTC is the best one if you qualify. The question that clients always ask is, "Can I claim the education tax credits and or deduction if I received a student loan?" The answer is YES!!!
The AOTC is for undergraduate college students and their parents. The credit can be claimed on your taxes for a maximum of four years. Parents can claim the credit if they paid for the college students education expenses and the college student is listed as a dependent on the parents tax return.
The American Opportunity Credit is one of those credits that can reduce the taxpayers tax liability and it can also be a refundable credit. For example, if you owe $4,000 in taxes and are eligible to claim the $2,500 max credit, you would only owe $1,500 ($4,000-$2,500) to the IRS. If you meet certain income requirements and had no tax liability you could receive up to $1,000 back as a refund which is about 40% of the maximum credit.
The Lifetime Learning Credit is for undergrads, graduate, and non-degree/vocational students. For this credit, there is no limit on the number of years you can claim it. Generally, graduate students or anyone taking classes to develop new skills or anyone who has exhausted the AOTC uses this credit. However, you can’t claim both the AOTC and the Lifetime Learning Credit in the same year. The Lifetime Learning Credit is not a refundable credit it can only be used to reduce your tax liability.
Note: This area is an easy audit area for the IRS. The IRS requires businesses that make “reportable transactions” to file information returns [Form 1098-T ] with the IRS and provide a copy to the other party involved in the transaction, in this case the student. Basically, the IRS has a copy of what the school gave you. If those numbers don't match up when you file, this could impact the outcome of your tax return. [For tax treatment of education credits, please see irs.gov]
For more information or if you are ready to file your tax return, call or go to our tax booking page and book an appointment!!
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