If there was a college student in your family last year, you may be eligible for some valuable tax breaks on your 2015 tax return. To max out your education tax breaks, you’ll need to determine which ones you’re 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.
Know Credits vs. Deductions
Tax credits can be especially valuable because they reduce taxes dollar-for-dollar. On the other hand tax deductions reduce only the amount of income that’s 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 phase-outs apply to these credits.
If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, the Lifetime Learning credit isn’t 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’s an above-the-line tax 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 Will You Save on Your 2015 Tax Return?
Keep in mind that, if you don’t qualify for tax breaks for your child’s educational expenses because your income is too high, your child may still qualify for a tax break. Many additional rules and limits apply to tax credits and deductions for students, however.
To determine which breaks your family might be eligible for on your 2015 tax return — and learn which will provide the greatest tax savings — please contact Miller Kaplan.
We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this impacts you.