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Five Ways to Offset Education Costs
College can be very expensive. To help students and
their parents, the Internal Revenue Code offers the following five
ways to offset education costs.
1.
The American Opportunity Credit This credit can
help parents and students pay part of the cost of the first four
years of college. The American Recovery and Reinvestment Act
modifies the existing Hope Credit for tax years 2009 and 2010,
making it available to a broader range of taxpayers. Eligible
taxpayers may qualify for the maximum annual credit of $2,500 per
student. Generally, 40 percent of the credit is refundable, which
means that you may be able to receive up to $1,000, even if you owe
no taxes.
2. The
Hope Credit The credit can help students and parents pay
part of the cost of the first two years of college. This credit
generally applies to 2008 and earlier tax years. However, for tax
year 2009 a special expanded Hope Credit of up to $3,600 may be
claimed for a student attending college in a Midwestern disaster
area as long as you do not claim an American Opportunity Tax Credit
for any other student in 2009.
3.
The Lifetime Learning Credit This credit can help
pay for undergraduate, graduate and professional degree courses –
including courses to improve job skills – regardless of the number
of years in the program. Eligible taxpayers may qualify for up
to $2,000 – $4,000 if a student in a Midwestern disaster area – per
tax return.
4.
Enhanced benefits for 529 college savings plans
Certain computer technology purchases are now added to the list of
college expenses that can be paid for by a qualified tuition
program, commonly referred to as a 529 plan. For 2009 and
2010, the law expands the definition of qualified higher education
expenses to include expenses for computer technology and equipment
or Internet access and related services.
5.
Tuition and fees deduction Students and their
parents may be able to deduct qualified college tuition and related
expenses of up to $4,000. This deduction is an adjustment to income,
which means the deduction will reduce the amount of your income
subject to tax. The Tuition and Fees Deduction may be beneficial to
you if you do not qualify for the American opportunity, Hope, or
lifetime learning credits.
You cannot claim the American Opportunity and the
Hope and Lifetime Learning Credits for the same student in the same
year. You also cannot claim any of the credits if you claim a
tuition and fees deduction for the same student in the same year. To
qualify for an education credit, you must pay post-secondary tuition
and certain related expenses for yourself, your spouse or your
dependent. The credit may be claimed by the parent or the student,
but not by both. Students who are claimed as a dependent cannot
claim the credit.
If this all seems confusing you are not alone. Feel
free to contact our office to schedule an appointment to discuss
your children’s higher education.
Michael T. McCormick, JD, LL.M.
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