Put Your Taxes Back in Your Pocket
In our previous chart entries (here and here) we explored the primary tax breaks available to students and their families: the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit (LLC) and the deduction available for tuition and fees.
Now here’s a word of advice. In regards to taxes, anytime you see the word “credit” sit up and take note. A credit is a dollar-for-dollar discount from your tax bill for funds placed elsewhere. In other words, a credit is the opportunity to take money that you owe Uncle Sam or the state and redirect it for some other purpose. If that purpose is in line with something you already want to do it makes all the sense in the world to take advantage of it. Either way you must spend the money, so why not spend it to your benefit?
http://trulyyoursjen.com/2018/06/saying-goodbye/?share=facebook This brings us to a Tip of the Week: Put your taxes back in your pocket. In other words, don’t pay tuition and taxes if you don’t have to.
The most pertinent of the credits to undergraduate students would be the AOTC. This credit is worth up to $2500 per eligible student (see resources below for eligibility determinations). This means that every dollar you spend on education will reduce your tax bill by one dollar, until you hit the $2500 limit. Tuition out, taxes in.
For an example of how this works suppose you or your child, within certain bounds, attended college and paid $4000 out of pocket to do so. Suppose at the same time you or your family owes the IRS a $3000 in taxes. If you take advantage of the AOTC the first $2500 you spent on college will be subtracted directly from the tax bill, leaving you owing “only” $500 to the feds.
Better yet, this particular credit is partially refundable meaning if you spend more on tuition than you owe in taxes you may get a certain portion of the difference back in the form of cash.
For the students who are pursuing post-secondary education and/or courses to acquire or improve job skills the LLC offers a similar benefit but at a slightly lower amount of $2000. In other words if you owe taxes AND want to take classes at the local junior college you can redirect your tax bill to your tuition payment.
Oddly and unfortunately, relatively few eligible families take advantage of these credits. In so doing they leave thousands of dollars on the table that could help out with school bills. According to Rick Castellano of Sallie Mae, “We found that less than half of families are using tax credits and deductions as a way to lower tuition costs. Some folks just aren’t aware these tax credits and deductions are available to them.”
Beware that to claim the credit you also have to file IRS form 8863, Education Credits, which I suspect lends to the ignorance. These just aren’t on the radar of anyone filing the 1040 EZ or who isn’t required to file at all. Per usual, I recommend consulting with a tax professional with specific questions.
Whatever the case consider yourself hereby alerted. Pay tuition. Pay your taxes. Just don’t do both in the full amount if you don’t have to.
go here Further Resources:
purchase finasteride online Overview of both credits and/or the deductions: