Education Tax Credits to Keep You Growing

American Opportunity & Lifetime Learning Credits

An individual may claim one of two types of educated-related tax credits, the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit, for qualified tuition and related expenses paid or incurred during the tax year. The credits are elective and nonrefundable except that up to 40 percent of the AOTC may be refunded.

American Opportunity Tax Credit (AOTC)

In its most basic form, the exclusion works like so: The AOTC is the sum of 100 percent of the first $2,000 of qualified tuition and related expenses paid by the taxpayer for an eligible student, plus 25 percent of the next $2,000 of qualified expenses paid. The credit amount phases out ratably for taxpayers with modified adjusted gross income (MAGI) between $80,000 and $90,000 ($160,000 and $180,000 for joint filers).

Lifetime Learning Credit

The lifetime learning credit is equal to 20 percent of the qualified tuition and related expenses paid by the taxpayer during the tax year on the first $10,000 of tuition.The allowable credit is reduced if the taxpayer has MAGI above certain thresholds. The phaseout begins for single taxpayers in 2018 when MAGI reaches $57,000 ($58,000 for 2019). The phaseout begins for married individuals filing jointly in 2018 when MAGI reaches $114,000 ($116,000 for 2019).

Qualified Tuition and Related Expenses

Qualified expenses generally include course materials such as books, supplies, or equipment only if required for enrollment. They do not include room and board, insurance, student health fees, transportation costs, or expenses that relate to any education that involves sports, games, or hobbies unless part of the student’s degree program.

California Accounting Tax Experts Can Help!

Our tax experts at California Accounting can help you navigate these education credits to ensure you are able to maximize your tax savings. Our CPAs have many years of experience with these opportunities and will make sure you don’t miss out! Call us today at 916.721.4357!