If you are about to go (or send someone) off to college, payment deadlines for tuition and other fees are not far behind. The IRS advises students or parents paying such expenses to keep receipts and to be aware of some tax benefits that can help offset college costs.
American Opportunity Credit. This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional year, through 2012, and can be up to $2,500 for students in the first four years of college. Forty percent of this credit is refundable, which means that you may be able to receive $1,000, even if you owe no taxes. The full credit is generally available to individuals earning less than $80,000, or $160,000 for married couples filing a joint return.
Lifetime Learning Credit. You may be able to claim a Lifetime Learning Credit of up to $2,000 for classes taken in 2011 so long as you make less than $60,000 a year ($120,000 if married filing jointly).
Tuition and Fees Deduction. This deduction can reduce the amount of your taxable income by as much as $4,000, even if you do not itemize your deductions. Generally, you can claim the deduction if you make less than $80,000 a year ($160,000 if married filing jointly).
Student Loan Interest Deduction. If you make less than $75,000 a year ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan. It can reduce the amount of your taxable income by up to $2,500, even if you don’t itemize deductions.
You can choose to claim only one of the credits in a single tax year, per student. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son, for example.
For more information, visit www.irs.gov or call 800-829-3676.