Taxpayers should review education tax credits before filing their taxes, as this can result in significant savings on their annual return. Education tax credits are designed to help taxpayers cover costs related to the education of themselves, a spouse, or dependents. These credits can be an effective way to reduce the amount of tax the taxpayer owes to the federal government.

There are two education tax credits:

• American Opportunity Tax Credit (AOTC): This has a maximum benefit of up to $2,500 per eligible student. It is available only for the first four years of higher education. If the credit reduces the amount of tax you owe to zero, you can receive a refund of 40% of any remaining credit amount (up to $1,000). To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You cannot claim the credit if your MAGI is more than $90,000 ($180,000 for joint filers).
• Lifetime Learning Credit (LLC): Has a maximum benefit of up to $2,000 per tax return, per year, no matter how many qualifying students. It’s available for all years of postsecondary education and for courses to acquire or improve job skills. The LLC is nonrefundable, so you can use the credit to pay any tax you owe, but you won’t receive any part of the credit as a refund. For tax year 2023, your LLC amount is phased out if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if filing jointly). You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if filing jointly).

For both tax credits, the eligibility requirements are:

• The taxpayer, his or her spouse, or his or her dependents must be taking post-secondary courses in tax year 2024.
• The student must have a Form 1098-T, Tuition Statement, from an eligible educational institution. There are exceptions for some students.

To claim any of the credits, taxpayers must complete Form 8863, Education Credits, and file it with their federal tax return.

In conclusion, education tax credits are a great way to invest in our future and that of our children, while helping to ease our tax burden. It is important to remember that these credits are subject to change and it is critical to stay informed about updates to tax legislation. Before filing our taxes, it is advisable to consult a tax professional to ensure that we are taking full advantage of all available opportunities to reduce our tax burden.

At My Accounting Now we will help you with everything related to taxes and thus avoid any fines with the IRS. Schedule a consultation with our team by calling 786-228-8689 or sending an email to info@myaccountingnow.com