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Get Ready for FAFSA Season!Guest Contributor
By Billie Jo Weis
Saving on college means more than just earning scholarships or financial aid awards. It also means being wise at tax time so you don’t miss out on deductions that can save you money. Here are a few credits to check out.
What expenses does it cover? The first four years of college for eligible expenses which may include tuition, fees and course-related books, supplies and equipment.
Who is eligible? A taxpayer can claim the credit for an eligible student if the taxpayer has a modified adjusted gross income of $80,000 or less, or $160,000 or less for joint filers.
How much can you save? The credit is for up to $2,500. That breaks down to 100 percent of the first $2,000 in expenses and 25 percent of the next $2,000. Even if you owe no taxes, you can still benefit from this credit. Up to $1,000 of the credit is refundable. Also, if you have more than one child in college, you can claim the credit for each eligible child, thereby multiplying your savings.
Are there any limits? You can take the credit for up to four years per student.
Bonus tip: If parents do not qualify for the deduction, a child can take the deduction on their taxes as long as the parent doesn’t claim the child as a dependent in that tax year. This can be especially beneficial to a student in the tax year when they first start working full time after graduation.
What does it cover? Anyone taking courses for credit or noncredit from a qualified educational institution.
Who is eligible? A student or parent of a dependent student with an income of up to $57,000, or $114,000 if filing jointly.
How much can you save? A maximum of $2,000. The credit covers 20 percent of the first $10,000 in tuition expenses paid in a given year.
Are there any limits? You can take the credit for an unlimited number of years, but you can only take it for one student per year.
Bonus tip: You cannot take the Lifetime Learning credit if you are already taking the American Opportunity credit or if anyone else is claiming the credit on your behalf. Unlike the American Opportunity credit, the Lifetime Learning credit is not refundable. But if a parent is not eligible for the credit, their tax-filing student can take it as long as the parents don’t claim the student as a dependent in the same tax year.
What are some examples? Money from college saving plans such as a 529 plan or Coverdell Education Savings Account, or money from cashing out Series EE or Series I Savings Bonds issued after 1989.
What are the benefits? Withdrawals or redemptions are tax free if used for eligible educational expenses that are not already covered by an American Opportunity or Lifetime Learning credit.
What are the limits? For bonds, the tax break begins to phase out at a modified adjusted gross income of $79,700 for single taxpayers, or $119,550 for married couples filing jointly.
Bonus tip: You can earn tax-free benefits from a college savings plan withdrawal or bond redemption in the same year that you take an American Opportunity or Lifelong Learning credit as long as the money used from a saving plan or bond covers different expenses than the credits.