Here are two major education tax breaks, an explanation of who qualifies for each, and how to figure out which will save you the most money.

The American Opportunity Tax Credit
The AOTC is generally the most advantageous of the tax breaks mentioned here, but it also comes with the most restrictions.

Experts point to the American Opportunity Tax Credit as the most valuable credit, which is worth up to $2,500 per student. This credit is dollar-for-dollar for the first $2,000 of a student’s expenses, and then 25 percent of the next $2,000. The American Opportunity Tax Credit is even more generous if you have more than one college student in the first four years of college. This credit is available per student, allowing one family to receive up to $2,500 for each student.

Unfortunately, this is also the toughest one to qualify for. In order to take the credit, you must be in your first four years of higher education, and enrolled at least half-time in a degree-seeking program. You cannot claim the credit for more than four years, and those students who have a felony drug conviction on their record are ineligible. The credits are subject to income limits that could reduce the amount claimed on their tax return.

Credits are much better than deductions, because they reduce your actual tax liability (as opposed to your taxable income) dollar for dollar. This credit is partially refundable, which means that even if it brings your tax liability down to zero, you are still eligible to have up to $1,000 of the credit refunded to you.

The Lifetime Learning Credit
The Lifetime Learning Credit can still put a lot of tax savings back in your pocket, although not the same as the AOTC. Many people who qualify for this one don’t even know it.

The LLC is worth 20% of the first $10,000 in tuition and other qualifying expenses per year, so you can get up to $2,000. Unlike the AOTC, this one is not refundable, so it can potentially reduce your tax liability to zero, but no further. Also, the MAGI limits to take the full credit amount are significantly lower, at $52,000 and $104,000 for single and joint filers, respectively.

The Lifetime Learning Credit is much easier to qualify for than the AOTC. You don’t need to be enrolled in a degree program, nor do you need to be enrolled at least half-time or be in the first four years of college.

All you need to qualify for the LLC is to be enrolled in at least one course at a qualifying higher education institution. So, even if you simply took a class to improve your job skills, you can qualify for the LLC.

Steven Z. Freeman, CPA provides trustworthy and professional Tax Planning and Business Accounting and can assist you with these services. If you have any questions on this matter, or to schedule an initial consultation, Please call us at (805) 495-4211.

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