We hope that everyone had a wonderful Labor Day weekend! With summer officially coming to a close and school in full swing there is still time to have an impact on your 2012 taxes. Last week we discussed taxes pertaining to our business and children. This week we will share how paying college expenses can impact your taxes. Some of us are now parents to (gulp) a college student. This can be an exciting and scary time for both the parents and young adult. With this new and exciting adventure comes the ever increasing expense for attending college.
Luckily the IRS offers some tips about education tax benefits that can help offset some of the college costs. There are a few options to choose from. The first is the American Opportunity Credit; this credit can be up to $2,500 per eligible student and is available for the first 4 years at an eligible institution. Forty percent of this credit is refundable which means you may be able to receive $1,000 even if you don’t owe taxes. The second is the Lifetime Learning Credit; this allows you to claim up to $2,000 for qualified expenses paid for a student at an eligible institution. Unlike the American Opportunity Credit there is no limit to the number of years you can claim this credit for an eligible student.
Qualified expenses include tuition and fees, course related books, supplies and equipment. Only one type of education credit per student may be claimed in the same tax year. If you have more than one college student you can claim the American credit on one and the Lifetime credit on the other, if you so choose.
There is also Student loan interest deduction. Most personal interest we pay is not deductible, however interest paid on a qualified student loan may be deductible. This can reduce your income subject to tax by up to $2,500, even when you don’t itemize deductions.
Education benefits are subject to income limitations and may be reduced or eliminated depending on your income. If you are paying college expenses please contact us with any questions & to make sure you are maximizing all possible benefits toward your 2012 taxes.
In the weeks to come we will share several last minute tax planning tips you can still do to have an impact on your 2012 taxes. We will discuss how you can be using your credit card, to buying office equipment, and even buying or selling a vehicle, and much more.
Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website http://www.harveyandcaldwell.com/ as a resource for your tax needs.