Happy Thursday, everyone! Just one more day left in the work week until the holiday weekend! Hopefully everyone will have a safe and relaxing Memorial Day weekend – I know I plan to!

Today, we are talking about education tax credits. Summer is almost here and the start of the fall classroomsemester for college is just around the corner! The Tax Cuts and Jobs Act (better known as “tax reform”) changed many things in the tax structure; however, the two most popular education tax credits – the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) – were kept intact. Let’s look at the details to see which is the best fit for you!

The American Opportunity Tax Credit (AOTC) is a partially refundable tax credit worth up to $2,500 per eligible student (with $1,000 being potentially refundable). This particular credit is only available to undergraduate students in their first four years of college. In order to qualify, the student must be enrolled at least half-time for at least one academic period during the tax year and not have any state or federal felony drug convictions.

Generally, single taxpayers with modified adjusted gross incomes of $80,000 or less ($160,000 or less for married taxpayers) qualify. The credit can be used towards qualifying education expenses. Some of these expenses include tuition fees, books, course materials, etc. Various other expenses do NOT qualify for the tax credit. Some examples of such expenses are room and board, transportation costs, medical expenses, etc. If you have questions regarding the eligibility of certain expenses, give our office a call today!

If you don’t qualify for the American Opportunity Tax Credit, don’t fret! There is another option. The Lifetime Learning Credit (LLC) qualifications are a little more lenient than those of the American Opportunity Tax Credit. The Lifetime Learning Credit is worth $2,000 towards qualifying education expenses, but unlike the AOTC, no portion of the credit is refundable. It can help to reduce the tax liability to zero, but any portion of the credit which is unused would disappear instead of being issued in the form of a refund.

textbooksTo qualify for the credit, single taxpayers must have a modified adjusted gross income of less than $66,000 ($132,000 for married taxpayers). However, if single modified adjusted gross income falls between $56,000 and $66,000 ($112,000 and $132,000 for married taxpayers), taxpayers qualify to claim a reduced portion of the credit. Unlike the AOTC, in order to qualify, taxpayers can be enrolled less than half-time for at least one academic period during the tax year. Also unlike the AOTC, there is no limit to the number of years which the credit can be claimed. The LLC credit can be used for graduate programs (Masters Degree and beyond) unlike the AOTC.

Because only one of these credits can be claimed per tax year, taxpayers who qualify for both credits usually choose the AOTC because of its larger value and its potential partial refund.

If you have questions regarding the eligibility of you or your student for education tax credits or have other tax-related questions, give our office a call today! One of our tax experts can help you develop a tax strategy that will help keep your hard earned dollars in YOUR pocket and reduce that tax liability.

Don’t miss a thing! Follow Wealth Builders on LinkedIn, Twitter, and Facebook for all things financial! If you haven’t already, sign up for our free quarterly newsletter and weekly “Tax Tips” email. Both are full of lots of great information and tips to help you keep more money in YOUR pocket by decreasing your tax liability and increasing your cash flow. Sign up today !

“AOTC.” Internal Revenue Service, www.irs.gov/credits-deductions/individuals/aotc.

“Education Credits: Questions and Answers.” Internal Revenue Service, www.irs.gov/credits-deductions/individuals/education-credits-questions-and-answers.

“LLC.” Internal Revenue Service, www.irs.gov/credits-deductions/individuals/llc.

Pickering, Kathy, and Tax Institute. “Changes to Education With Tax Reform – Tax Information Center.” H&R Block Company Information – H&R Block, HRB Digital LLC., 8 Feb. 2018, www.hrblock.com/tax-center/irs/tax-reform/changes-education-tax-reform/.