You may be. There are two education tax credits — the American Opportunity credit, worth up to $2,500, and the Lifetime Learning credit, worth up to $2,000. To claim either credit in a given year, you must list your child as a dependent on your tax return. In addition, you must meet income limits.
For 2020, the maximum American Opportunity credit is available to single filers with a modified adjusted gross income (MAGI) below $80,000 and joint filers with a MAGI below $160,000. A partial credit is available to single filers with a MAGI between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000. For 2020, the maximum Lifetime Learning credit is available to single filers with a MAGI below $59,000 and joint filers with a MAGI below $118,000. A partial credit is available to single filers with a MAGI between $59,000 and $69,000 and joint filers with a MAGI between $118,000 and $138,000.
Now, what credit might you be eligible for? The American Opportunity credit applies to the first four years of undergraduate education and is worth a maximum of $2,500. It is calculated as 100% of the first $2,000 of your child's annual tuition and related expenses, plus 25% of the next $2,000 of such expenses. To qualify for the credit, your child must be attending college on at least a half-time basis.
The Lifetime Learning credit is worth a maximum of $2,000 per year. It is calculated as 20% of the first $10,000 of your child's annual tuition and related expenses.
You will need to determine which credit offers you the most benefit in a given year. Proactive Tax Planning will minimize your tax liability thru educational planning.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.