Use Tax Credits To Help Finance Your College Education
by: Pat Nash
Students are always on the lookout for ways to help pay or offset the cost of their tuition. There are various government grants and scholarships available to you if you qualify. But what if you donít qualify for these government programs? Donít loose hope there are still options available to you that can help offset those tuition bills.
Did you know that tax credits are another way that Uncle Sam can help you finance your college education? Well itís true and it has come to my attention that there are many students, old and new alike, who are not taking advantage of these educational tax credits that they are entitled to. Specifically the tax credits are the Hope Tax Credit and the Lifetime Learning Tax Credit. These two tax credits will reduce the amount of Federal Income Tax that you would pay dollar for dollar, unlike tax deductions that are used to lower your taxable income. Itís like someone saying to you ďif you spend your money on college, Iíll give it back to you.Ē The tax credits are based on the amount of qualified educational expenses that students pay.
What are these qualified expenses? Qualified expenses are tuition and fees that are required to pay to an accredited college, university, or vocational school as a requirement for attendance. Fees that are not included are room & board, personal living and family expenses. Other expenses that may also qualify are expenses for books, supplies, student activity fees, and equipment if they are required to be paid to the school as a condition for enrollment.
Who is eligible for these tax credits? Anyone can claim these tax credits; you can claim these credits for yourself, your spouse and anyone you can legally claim as a dependant on your tax return.
The Hope Tax Credit is worth up to a maximum of $1,500, depending on how much the qualified educational expenses are, 100% of the first $1000 and 50% of the next $1000. To be eligible for The Hope Tax Credit the student need to be enrolled at least half time (6 credits) in at least one semester and meet certain income requirements. The Hope Tax Credit is available for each and every student, on the same tax return enrolled in a qualifying college program. This credit can be taken for the first two years of post secondary education (undergraduate degree or vocational school) for each student. A family with three students with qualified expenses of $2,000 each on the same return equals a $4,500 reduction in the taxes you owe.
The Lifetime Learning Tax Credit works a little bit differently, the credit is based on 20% of the of the first $10,000 of educational expense up to a maximum credit is $2,000 per return not per student. This credit can be taken for any and all years that a student takes even just one class that will improve or acquire job skills (undergraduate, graduate and professional degree courses included). If you have qualified expenses of $2,000 then you get a tax credit of $400 (.20 X $2,000).
Consider this, these tax credits can bring down the tax that you owe on April 15th, and money that you donít have to pay in tax can be used to pay for the education you want and deserve. Other limitations are that both of these tax credits may not be used for the same student in the same year. Students that have been convicted of a felony drug offense can not claim the Hope Tax Credit, but they can still take advantage of the Lifetime Learning Tax Credit.
This is just a brief overview of these tax credits that all students should know about and the advantage of. I recommend that you do refer to IRS Publication 970 and IRS: Topics for Students for further information or discuss these tax credits with your Tax Professional.
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