Come winter time, there are a lot of activities that fill our schedule, but filing a tax return is most certainly not something that enters our mind. Here’s a reason why we are talking about tax at this time of the year. Let us give you a quick refresher on how families with college children have a chance to gain some financial benefits. Read on to see how to take advantage of this amazing opportunity now before it’s too late!
A Biggie in American Credit!
If more than one person at home is currently taking up a degree this academic year, this one could be a biggie for you — the American Opportunity Credit! You will qualify for up to $2,500 in education expenses for every student taking up their post-secondary education.
You might get slightly confused between the terms credit and deduction. A credit will reduce the amount of tax that you owe, whereas a deduction will reduce the income amount that you are being taxed on. A credit, as you can see, will have a bigger impact on you financially. For joint filers with an income of $160,000 and single filers with an income of $80,000, there is a gradual phaseout of the credit.
Why Interest Can Be Good!
Here is another higher education tax benefit that you should get your hands on — the student loan interest deduction! The student loan interest deduction deducts up to $2,500 in interest paid for a student loan. The kind of loans that qualify for these are most types that are taken in order to pay for higher education expenses or the more traditional ones as well.
When it comes to qualified interest, it might be best for you to get the exact details of the total amount of money paid from the loan holder. The amount will be deducted if you’ve made payments of at least $600 for interest over the tax year. For interest amounts less than $600, you will have to make a few calls and get more details.
A Limitless Opportunity!
Much like the American Opportunity Credit, the Lifetime Learning Credit could be good news for you! The Lifetime Learning Credit, as the name suggests, does not have a limit on how many years the credit can be claimed and its credit limit is slightly less than $2,000. You will not, however, be able to claim both the American Opportunity Credit and Lifetime Learning Credit within the same tax year!
The year 2013 saw a rise in income limits for single filers from $52,000 to $62,000 and for joint filers from $104,000 to $127,000.There will be slow reduction in the allowed credit for those who make more than $53,000 but less than $62,000.
If you don’t owe much tax to begin with, a tax credit is what you should be looking at — as (let’s face it) a deduction is not going to do you much good in this case. The tuition and fees deduction offers you deductions of up to $4,000 as qualified education expenses for payments you may have made during the tax year for your spouse, dependent, or yourself. If you would like to avail this deduction, you will have to refrain from opting for the above mentioned options. Let’s have a look at the income caps for this deduction: For single filers: $80,000 & joint filers: $160,000.
For more details on these opportunities and about your eligibility for these, do your research on credits and deductions before you decide which one would be the most favorable one for you. It would be ideal for you to consult with a tax professional before making your pick. Make the best of the present day opportunities and save your bank account from taking a hard hit!