Have you ever received a disappointing tax return? Nearly every American has. With 10.1 million words in the tax code, who can maximize their return without hiring a professional accountant?
In the past, you may have needed to go to the library and scour heavy, boring books about taxes. Now, however, most of your questions can be answered with a simple Google search.
By researching tax deductions and tax credits, you improve your return. One of the best types of tax deductions is for higher education.
Check out this tax guide for higher education expenses to see how you can use them to your advantage.
Tuition and Fee Deduction
The most straightforward way of maximizing your return is to report the tuition and fees paid. You do not need to itemize, and students do not have an enrollment threshold. Even one course can be deducted from your taxable income.
Additionally, you can deduct any interest paid on student loans. Again, this does not need to be itemized. Remember, however, that if your income is high, you will not qualify for this deduction.
While there are many types of tax deductions, there are also other ways to maximize your return. Educational tax credits are a good example.
Deductions lower your taxable income, while credits lower your tax liability. Using them jointly is the key to tax return success. Review these two credits to see which one works best for you.
The American Opportunity Tax Credit
To qualify for this credit, your adjusted gross income must be less than $80,000. If your married and filing jointly, that threshold is $160,000.
If you have paid tuition or college-related expenses within the first four years of study, even if that student is you, you may qualify for this credit.
You can get a credit of $2,500 per year for any student in their first four years of college. You can even have up to $1,000 of the credit returned to you if the credit exceeds taxes owed.
The Lifetime Learning Tax Credit
Unlike the American Opportunity Tax Credit, the Lifetime Learning Tax Credit is not time-limited, so it is not only applicable to the first four years of study.
This credit, however, only offers $2,000 annually, and is only applicable to the first $10,000 of tuition paid per taxpayer. You will not get more credit for each additional student.
Even the IRS agrees that tax credits are worth more than deductions, so think carefully about which credits you use because you cannot claim both, and they are limited.
Learning About Types of Tax Deductions
Although filing taxes isn’t easy, there are many resources out there to help you. You are even eligible for free, Volunteer Income Tax Assistance if you have disabilities, have limited English language abilities, or make $54,000 or less every year.
However, if you’re looking for more specialized help, give Duncan and Company a call. Our certified public accountants can help with business accounting, business consulting, business incorporation, tax planning and compliance, payroll, and bookkeeping.
Or, if you have a quick question, post it in the comments below!
About the Author:
Chris Duncan, CPA
As a South Carolina native, Chris has spent the better part of his life in the Charleston area. Chris graduated from The Citadel with a degree in Business Administration (Accounting Concentration) in 1999. In 2006, Chris launched his own CPA firm. For the past twelve years, Chris has worked as a local CPA and provided services to both individuals and commercial clients in a variety of industries to include accounting, bookkeeping, tax, and payroll service