An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC). Don’t overlook these important credits.
Who can claim an education credit?
There are additional rules for each credit, but you must meet all three of the following for both:
You, your dependent or a third party pays qualified education expenses for higher education.
An eligible student must be enrolled at an eligible educational institution.
The eligible student is yourself, your spouse or a dependent you list on your tax return.
Compare the education credits
The education credits have some similarities but some very important differences. Find out which credit you qualify for, see this handy chart to compare the education credits.
Find out more about the American opportunity tax credit
Find out more about the lifetime learning credit
Maximizing your education credit
There are several things to consider when trying to maximize your education credit. With the economic fluctuations in 2020, it is possible your income fluctuated substantially and/or exceeded X this year, but may go back to Y next year - or vice versa. If so, carefully consider the timing of payments to educational institutions. With many not returning to school until later in January, 2021, you may be able to take advantage of this unique situation.
Contact us if you’d like to discuss further us or look at scenarios for you.
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