January 4, 2011
College tax credits and deductions for your 2010 return
Hooray! It’s 2011 and like the most of the population of the U.S., you’re probably gearing up to ring in the new year by filing your 2010 taxes in hopes of a hefty return! If you or a dependent attended college during 2010, you’re in luck because the federal government offers tax credits and deductions to help lighten the college tuition load. There are two different tax credit options to choose from (Usually three options, but the “Hope Credit” is unavailable for the 2010 tax return) as well as a standard deduction for higher education.
The two tax credits are:
- American Opportunity Credit: The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return (credit is phased out for taxpayers with incomes above these levels). These income limits are higher than under the existing Lifetime Learning Credits (see next bullet). Can only be used for the first four years of college. Maximum annual credit of $2,500 per student. (Click for more detailed description from irs.gov)
- Lifetime Learning Credit: May be claimed for the qualified tuition and related expenses of the students in the taxpayer’s family (i.e., the taxpayer, the taxpayer’s spouse, or an eligible dependent) who are enrolled in eligible educational institutions. Can help with graduate and professional degree courses regardless of the number of years in the program. The credit is equal to 20% of the taxpayer’s out-of-pocket expenses up to a maximum of $10,000 in expenses. For more than one student, the maximum credit does not change. (Click for more detailed description from irs.gov)
If your income is too high and you don’t qualify for the Lifetime Learning tax credits or if your course load was too light in 2010 and you don’t qualify for the American Opportunity tax credit either, there is still an option for you to save some coin with a tax deduction.
- The Deduction for Higher Education: May be claimed for yourself, your spouse or your dependents to help subsidize post-high school education expenses paid throughout 2010. Depending on your income, you can deduct up to $4,000 of qualified tuition and related fees. (For an in-depth description of the deduction from TurboTax®, click here.)
Before you choose to use the deduction or one of the credits, make sure you fully educate yourself about each of the options. When they are available, credits can be valuable because they lower your federal income tax bill dollar for dollar. However, the Lifetime Learning credit has stricter income limits than the tuition deduction. Also, while the American Opportunity credit has looser income limits, other restrictions may cause you to be ineligible.
VERY IMPORTANT: The last and most important detail to keep in mind is that if you are wanting to claim the deduction and itemize your taxes, you will have to wait until at least mid-February before the IRS will have the necessary forms ready! (For additional details on this matter, read the blog “The Tax Man Cometh, But This Year He’ll Be Late” by Scott Neuman at NPR)