Investing in education is almost always a wise decision, but it can also introduce a very real financial burden. Fortunately, there are education tax credits that can present a valuable opportunity to offset some of the associated expenses. Exploring how education tax credits work, the eligibility criteria, and how they can benefit you as a taxpayer can make higher education more accessible. Whether you are a student working to further your education, a small business owner taking courses for your own professional development, or the parent of a college student, these credits can lead to substantial tax savings. Here’s how education tax credits offer tax savings for eligible taxpayers.
Types of Education Tax Credits
When it comes to education tax credits, there are two main options for eligible taxpayers to claim.
- American Opportunity Credit (AOTC): The AOTC specifically targets eligible students pursuing post-secondary education. Under this credit, you can claim up to $2,500 per student for the first four years of higher education. To be eligible for the American Opportunity Tax Credit, students must be enrolled in a qualified educational institution and actively pursuing a degree or other recognized education credential. The student must be a dependent of the filing taxpayer or their spouse. This credit does phase out for taxpayers with modified adjusted gross incomes (AGI) above certain thresholds.
- Lifetime Learning Credit (LLC): Available to a broader range of individuals than the American Opportunity Tax Credit, the Lifetime Learning Credit is a tax credit of up to $2,000 per taxpayer. Undergraduates, graduate students, those pursuing professional courses, and those acquiring new skills are eligible. Status as a dependent of another taxpayer is not required, and the LLC can be claimed for any number of years of post-secondary education. Unlike the AOTC, students taking a single course to improve job skills can claim the LLC.
Education Tax Credit Eligibility and Qualifying Expenses
To claim education tax credits, taxpayers must meet specific criteria and ensure the expenses they incur are considered qualifying education expenses. Because the AOTC and the LLC have different eligibility criteria, it’s always wise to work with a knowledgeable tax professional in order to ensure compliance.
Expenses like room and board, transportation, and insurance are typically not eligible for education tax credits. Tuition, required fees, and required course materials such as textbooks are common qualifying expenses.
Investing in Learning and Reaping the Benefits of Education Tax Credits
Pursuing your educational goals, investing in professional development, or paying for a qualifying dependent to do the same are all great ways to boost earning power and employability. Education tax credit programs can make higher education more attainable, but the complexities of the U.S. tax code aren’t always easy to navigate.
Working with an experienced and knowledgeable CPA can make all the difference when it comes to minimizing your tax liability while maintaining full legal compliance. Myrick CPA makes it easier than ever to achieve your financial goals by balancing old-fashioned attention to detail and service with a tech-forward, client-friendly approach to providing seamless assistance.
Let’s discuss how you or your family might benefit from education tax credits. Contact Myrick CPA for expert guidance on these and other available tax credits, advice on tax planning, and strategies for personal wealth-building. Let us help you before, during, and after tax season.