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Keeping Your Eye On The Ball

As we say goodbye to this year’s Major League Baseball season, America’s favorite pastime, it is still important to keep your eye on the ball and something else native to our land: The American Opportunity Tax Credit.

With tax season soon approaching, here are a few credits to be aware of that might be helpful and (who knows) may even reduce the tax bill if you qualify when filing next year.

The American Opportunity Tax Credit is a $2,500 credit per post-high school student. Students can claim this credit for qualified educational expenses paid during an entire tax year for a certain number of years.  The credit is only available for four tax years per eligible student. The credit is available only if the student has not completed the first four years of post-secondary education before 2014.

Here are key features of the credit:

Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.

The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.

The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more or by singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.

Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. (IRS)

Another education credit to keep your eye on is the Lifetime Learning Credit. This credit is available up to $2,000 for both graduate and undergraduate students.  Here are the details:

The Lifetime Learning Credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Also, the lifetime learning credit does not provide a benefit to people who owe no tax.

Though the half-time student requirement does not apply to the lifetime learning credit, 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. Other features of the credit include:

Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.

The credit equals 20 percent of the amount spent on eligible expenses by students reported on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.

Income limits are lower than those indicated in the American Opportunity Tax Credit. For 2014, the full credit can be claimed by taxpayers whose MAGI is $54,000 or less. For married couples filing a joint return, the limit is $108,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $128,000 or more or by singles, heads of household and some widows and widowers whose MAGI is $64,000 or more. (IRS)

Click here for more information on these credits and other education tax benefits located on the IRS website.

In conclusion, click here to view a great interactive tax assistant tool to see if you qualify for any of the benefits featured here or other education related items. As always please feel free to reach out to our office with any questions, we would be happy to help.