Return To Blog

Understanding Education Tax Credits and Deductions for Denver Students

April 11, 2016

Education tax credits are a great way to make sure that you get a tax refund as a student, whether or not you earned a lot of money last year while you were in school. Before you go to a Denver accountant, make sure that you understand the different tax credits and ask about each of them and whether or not they apply. A local accountant will understand all the ins and outs of how to use each credit, but it helps to understand the documentation you will need to provide to earn each credit before you go to your accounting appointment.
  1. The American Opportunity Tax Credit -
    This tax credit can be applied to education costs for four post-secondary education years, meaning it could be used all four years while you are pursuing your Bachelor’s Degree. It is available to all taxpayers who make $80,000 or less annually. Unlike other credits, it covers costs of attendance beyond tuition, including books and school supplies. This credit only applies to those who paid for expenses out of their own pocket, and is not applicable to students who used financial aid to cover all of their expenses. Additionally, if you claimed the Hope credit in previous years, those years count toward the 4 years you can claim the AOTC for.
  2. Lifetime Learning Credit -
    The Lifetime Learning Credit, unlike the AOTC, can be claimed each year the student is in school. This credit can reduce the tax you owe down to $0, but it will not earn you a refund. This credit, like the AOTC, can only be claimed if you paid for tuition and fees out of your own pocket, and is not applicable to years covered entirely by financial aid. You can, however, claim costs that were paid with a loan, rather than a grant or scholarship. This credit does not include books and other school costs like the AOTC does. Additionally, you cannot use the credit if you file a tuition and fees deduction the same year.
  3. Student Loan Interest Deduction -
    If you paid interest on your student loan in cash, and your income is less than $80,000 annually, you can deduct the dollar amount you paid in student loan interest. A student loan is a loan that is used solely for tuition, room and board, and fee expenses, with no allowance for personal spending. It includes required as well as voluntary payments on your student loan interest. This deduction applies to graduate and undergraduate students, like the Lifetime Learning Credit. You must keep track of exactly how much you paid in order to file this deduction, with documentation.
  4. Tuition and Fees Deduction -
    This deduction can be claimed for any year you paid tuition and fees, including tuition paid for by student loans rather than financial aid. This deduction is not applicable if you claimed the AOTC or Lifetime Learning Credit. This deduction reduces your taxable income, and you qualify only if you earned less than $80,000 the year you are filing taxes for. The definition of student loan in this case is the same as the Student Loan Interest deduction.
Now that you are familiar with the most common credits and deductions you may apply for come tax time, consult your accountant or view this PDF on on Tax Benefits for Education on the IRS website so you can gather the necessary paperwork in preparation for your appointment with a Denver accountant.