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CREDITS: EDUCATION CREDITS. EDUCATION CREDITS  These credits are available to taxpayers who paid qualified education expenses for themselves, a spouse,

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Presentation on theme: "CREDITS: EDUCATION CREDITS. EDUCATION CREDITS  These credits are available to taxpayers who paid qualified education expenses for themselves, a spouse,"— Presentation transcript:

1 CREDITS: EDUCATION CREDITS

2 EDUCATION CREDITS  These credits are available to taxpayers who paid qualified education expenses for themselves, a spouse, or dependents.  There are two different Education Credits. A student may take only one.  The American Opportunity Credit is generous and partially refundable, but has more restrictions.  The Lifetime Learning Credit is less generous, nonrefundable, but more widely available.

3 Rules common to both credits A taxpayer may not take the credit if:  He/she can be claimed as a dependent on someone else’s return.  The filing status is Married Filing Separately.  The taxpayer’s AGI is above the limit.  The taxpayer (or spouse) was a nonresident alien not treated as a resident alien for tax purposes.

4 Common rules, cont’d.  Only a non-dependent taxpayer can take the credit.  If the student is a dependent, the person claiming him/her takes the credit, even if the student paid the expenses.  If the student is not claimed as a dependent, only the student can take the credit, no matter who pays the expenses.  If a third party (grandparent for ex) pays the expenses, they are considered a gift to the student. The third party cannot take the credit.

5 Common rules, cont’d.  Eligible educational institutions are those eligible to participate in student aid programs, i.e. almost all institutions.  Eligible expenses include tuition and related expenses. The definition is different for the two credits.  Taxpayers should have documentation (Form T from the school, receipts or records of expenses).

6 Common rules, cont’d. Certain expenses are not included:  Room and board;  Insurance or health fees;  Transportation, personal, living or family expenses;  Any other non-academic fees;  Any course involving sports, games, hobbies, unless part of degree program or for improving job skills.

7 Common rules, cont’d. Qualified expenses are those made from funds belonging to the taxpayer or student. They do not include payments made from:  Tax-free scholarships, Pell Grants;  Employer provided educational assistance;  Veteran’s educational assistance  Any other non-taxable payments received as assistance (except gifts, inheritances). Payments made from student loans DO count.

8 American Opportunity Credit  Open to taxpayers who meet the general requirements for education credits;  For students enrolled at least half-time in a program leading to a degree, certificate or other recognized credential;  In one of the first four years of post-secondary education;  Free of any felony conviction for possessing or distributing a controlled substance.

9 American Opportunity, cont’d.  The credit can cover up to $2,500 of eligible expenses per student.  For this credit, eligible expenses include course materials even if they are not purchased from the college.  The credit covers 100% of the first $2,000 and 25% of the second $2,000 of expenses, up to the amount of tax.  $1,000 of the credit can be refundable.

10 Lifetime Learning Credit  For students in any year of post-secondary education, or taking courses to acquire or improve job skills. There is no limit on the number of years of eligibility.  The student does not need to be pursuing a recognized credential, and does not need to be enrolled half-time.  A felony conviction is not an obstacle.

11 Lifetime Learning, cont’d.  Course-related books, supplies, fees, etc., are qualified expenses only if their costs must be paid to the school as a condition of attendance.  The credit is 20% of the first $10,000 of eligible expenses for all students on the return, up to the amount of tax. (So $2,000 for one tax return.)  No portion of the credit is refundable.

12 No multiple credits! Expenses must not be counted twice. You must not:  Take an American Opportunity Credit and a Lifetime Learning Credit for the same student in the same year.  Take an education credit using expenses that were used for an itemized deduction on Schedule A, or for a business expense on Schedule C-EZ.

13 How/Where to enter information  Information for all students on a return is entered on Form 8863, using data from Form 1098-T and taxpayer’s records.  There is a separate section for each credit.  The preparer needs to enter the name(s), SSN(s), and amounts, and TaxWise will figure the credit.


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