If there was a college student in your family last year, you may be eligible for some valuable tax breaks on your 2015 return. To max out your education-related breaks, you need to see which ones you are eligible for and then claim the one(s) that will provide the greatest benefit. In most cases, you can take only one break per student, and, for some breaks, only one per tax return.
Credits vs. deductions
Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that is taxed. A couple of credits are available for higher education expenses:
- The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education
- The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years
But income-based phaseouts apply to these credits.
If you are eligible for the American Opportunity credit, it will likely provide the most tax savings. If you are not, the Lifetime Learning credit is not necessarily the best alternative.
Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it is an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But, income-based limits also apply to the tuition and fees deduction.
How much can your family save?
Keep in mind that, if you do not qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2015 tax returns — and which will provide the greatest tax savings — please contact us.