A tax reduction made for students
Times are tight, and even with scholarships and loans it can be tough paying for school.
How about a tax break?
For eligible students, the American Opportunity Tax Credit, sometimes called the Hope Credit, offers up to a $2,500 direct tax reduction in 2012. While a deduction would reduce the amount of income you are taxed for, this credit reduces your total tax payment.
The amount is figured by how much you have paid for qualified education expenses: up to 100 percent of the first $2,000 and 25 percent of the next $2,000 for those within the credit’s income limits.
While you can’t claim the credit for personal spending, such as that for room and board, the American Opportunity Credit modified the previously available tax reduction and increased the number of qualified expenses.
According to the Internal Revenue Service website, the credit’s qualified expenses now include the charges from an eligible educational institution for attendance and the prices of materials necessary for a course of study. This means that you can claim the credit for the expenses of required books and supplies, even if they are not purchased from the educational institution.
You may not count untaxed expenses such as scholarships, grants, and assistance funds as qualifying educational expenses, or claim them for the credit.
Do you qualify?
Some of the credit’s key requirements are that you must be taking at least half time’s worth of courses for one period in the academic year and that your modified adjusted gross income must be less than $90,000.
The American Opportunity Credit is also only available to students who have not yet completed their first four years of post-secondary education.
Because you may not claim more than one educational tax credit per year, the National Association of Student Financial Aid Administrations recommends that you compare available tax credits and deductions in order to determine which will save you the most money.
If you want more detailed information about the American Opportunity Tax Credit qualifications or other federal educational credits, you can visit http://www.irs.gov/ or http://www.nasfaa.org/.
Who knows? You might catch a break.