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College is expensive and many students would like to get some alternative form of support that does not include signing up for a student loan. A student loan is one of the most stressful forms of credit to take because many students are not able to clear the debt many years after leaving college. But there is hope for those who would like to escape this trap. One of the ways to escape it is getting education related tax benefits, which allow you to offset your college fees depending on the amount issued.
Scott Groza is an education expert who has been mentoring students and offering them the advice they need to understand how to best pursue their goals in life. He has particularly been reviewing some of the best tax benefits one can embrace to make education more affordable. Here’s what he’s found.
American Opportunity Tax Credit
This is a tax benefit that is offered to students who are able to pay qualified tuition and are not dependents. It also applies to parents who cover expenses for students that depend on them. The credit replaces the Hope Credit and offers modified rules that make it available to many students, so this is one of the best opportunities that a student can embrace to help cover fees. The American Opportunity Tax Credit, unlike the Hope Credit, is applicable for the first four years of post-secondary education. You can claim up to $2,500 and full credit is given to individuals who have a Modified Adjusted Gross Income amounting to $80,000 or less.
Lifetime Learning Credit
Instead of limiting your qualification to secure credit for education expenses to pay for the first four years, you could apply for the Lifetime Learning Credit that will help you offset expenses in professional school or graduate learning. The thing that matters most is whether the institution qualifies, and once granted you can receive up to $2,000 for your expenses. It is calculated on 20 percent of your tuition and fees added up to the first $10,000.
However, as you approach certain income levels, there is a phase out. As it is available for parents to claim for dependent students, this is a largely open opportunity that you can sign up for to cover various costs of your education.
Student Loan Interest Deduction
This is one of the best options for higher education you can apply for. It gives you up to $2,500 in interest that is provided to qualified student loans in the tax year. As long as a loan was used to pay for your college education, it will count as this is one of the primary considerations taken into account when evaluating your eligibility. You cannot present money borrowed from your friends or parents as justification for a loan you spent on paying for college education.
Tuition and fees deduction
If you tend to owe a lot in taxes, a tax credit may not be as beneficial as a deduction. With the tuition and fees deduction you are issued up to $4,000 in deductions for qualified education expenses that are submitted during the tax year. It includes yourself, your dependant, and your spouse. Just like many other tax benefits, it does not allow double dipping, so you have to decide what to go for. Note that before you apply for any of these tax benefits it is important to conduct thorough research as there are a few details and stipulations that can make a difference.
This article was contributed by guest author Scott Groza.