Back To School Basics

As the end of summer is upon us, it ushers in the college students’ return to campus and memories of the first day of class, football, and tailgating. Many students and parents are facing this adventure for the first time and others are veterans of the process. In either case, it’s an active, exciting and increasingly expensive period in a young adults life. As this transition takes place, be mindful of the expenses you incur and how you are tracking them as they may provide you with tax benefits at year-end. Tax benefits, generally, are applicable to you, your spouse, or a dependent for whom you claim an exemption for on your tax return. There are four primary tax benefits available to you as a taxpayer: the American Opportunity Credit, the Lifetime Learning Credit, the Tuition and Fees Deduction, and the Student Loan Interest deduction. The premise is simple, pay for college and receive a tax benefit. Unfortunately, as with many credits and deductions, you must read the fine print. Let’s take a look at each credit a little closer to determine where you might benefit.

American Opportunity Credit

This credit is available through 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

Lifetime Learning Credit

In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).

Tuition and Fees Deduction

This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For more information or for an analysis on which of the above tax benefits fits your specific circumstances, please contact our Firm for further guidance. Good luck to all the students beginning their college years. More importantly, good luck to all of the parents on surviving!

brad@mcarthurco.com
704.544.8429