With the end of the summer near (or for most already here), brings about time for back to school for many students. Taxpayers that have students in college will be relieved to know that there is still time to capitalize on a tax credit opportunity for college expenses paid. The American Opportunity Tax Credit is still available until December 31st 2010 and will help students and their parents offset the cost of college. According to the IRS there are six (6) important factors taxpayers need to know to claim the credit:
1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.
2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
For additional details on how you can claim the credit, be sure to visit the IRS website or speak to your tax professional.
The Tech Accountant
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