Do I have undergrad students out there reading this? Parents of undergrad students reading this? This post's for you!
College days...I remember them well. I spent my freshman and sophomore years (1995-1997) at the University of Utah, and then later (2000-2002) finished my engineering degree at BYU. I remember all of the late nights (studying, of course!), early morning commutes and classes, penny-pinching/stretching, and top ramen dinners. I also remember struggling over my tax return each year (what does an 18 to 20-year-old know about taxes?) and wondering why I never got a tax break for paying for college.
Well, today is a much brighter day for students (or students' parents) and taxes. Chances are, if you're in undergrad school for the first time (translation: you have only been in college for four years or less TOTAL and you are degree-seeking), you or your parents will get some nice tax breaks.
The American Opportunity credit replaces the Hope credit for 2009 and 2010, and that's much better for you! If you (or your parents) paid for qualified education expenses, you (or your parents) can claim a tax credit of up to $2,500. Want even better news? Books and supplies required for your classes now count as part of your qualified educational expenses. But wait, there's even more to be happy about! 40% of the American Opportunity credit is refundable! (Please see my previous post if you don't understand what I'm talking about.)
So, how do you know how much of the tax credit you (or your parents) can take?
The credit is calculated dollar for dollar for the first $2,000 of qualified educational expenses,
i.e. you spend $2,000 on school, you get a $2,000 tax credit.
And then for the next $2,000 you spend on school, you receive another 25% of it in tax credits,
i.e. the next $2,000 of qualified educational expenses results in an additional $500 tax credit.
This makes a grand total of $2,500 tax credit if you spent at least $4,000 on schooling in 2009. And remember, 40% of this tax credit is refundable (that's $1,000 maximum)! If this credit (with it's refundable portion) was available to me back in my undergrad years, I would have jumped for joy and splurged on gummy bears once in a while.
Are you wondering why I keep referring to you or your parents? The American Opportunity credit goes to whoever claims you (the student) as a dependent (Have you really flown the nest? Or do mom and dad still foot most of your bills?) If you're fully independent, you get the credit; but if your parents are still claiming you each year, they get the credit. And funny thing, it doesn't matter if you pay the tuition and your parents claim you as a dependent; they still get the credit. And that works vice-versa too.
Need to know more about the American Opportunity credit? Look here.
And as always, let me know if you have any questions or need more clarification.
College days...I remember them well. I spent my freshman and sophomore years (1995-1997) at the University of Utah, and then later (2000-2002) finished my engineering degree at BYU. I remember all of the late nights (studying, of course!), early morning commutes and classes, penny-pinching/stretching, and top ramen dinners. I also remember struggling over my tax return each year (what does an 18 to 20-year-old know about taxes?) and wondering why I never got a tax break for paying for college.
Well, today is a much brighter day for students (or students' parents) and taxes. Chances are, if you're in undergrad school for the first time (translation: you have only been in college for four years or less TOTAL and you are degree-seeking), you or your parents will get some nice tax breaks.
The American Opportunity credit replaces the Hope credit for 2009 and 2010, and that's much better for you! If you (or your parents) paid for qualified education expenses, you (or your parents) can claim a tax credit of up to $2,500. Want even better news? Books and supplies required for your classes now count as part of your qualified educational expenses. But wait, there's even more to be happy about! 40% of the American Opportunity credit is refundable! (Please see my previous post if you don't understand what I'm talking about.)
So, how do you know how much of the tax credit you (or your parents) can take?
The credit is calculated dollar for dollar for the first $2,000 of qualified educational expenses,
i.e. you spend $2,000 on school, you get a $2,000 tax credit.
And then for the next $2,000 you spend on school, you receive another 25% of it in tax credits,
i.e. the next $2,000 of qualified educational expenses results in an additional $500 tax credit.
This makes a grand total of $2,500 tax credit if you spent at least $4,000 on schooling in 2009. And remember, 40% of this tax credit is refundable (that's $1,000 maximum)! If this credit (with it's refundable portion) was available to me back in my undergrad years, I would have jumped for joy and splurged on gummy bears once in a while.
Are you wondering why I keep referring to you or your parents? The American Opportunity credit goes to whoever claims you (the student) as a dependent (Have you really flown the nest? Or do mom and dad still foot most of your bills?) If you're fully independent, you get the credit; but if your parents are still claiming you each year, they get the credit. And funny thing, it doesn't matter if you pay the tuition and your parents claim you as a dependent; they still get the credit. And that works vice-versa too.
Need to know more about the American Opportunity credit? Look here.
And as always, let me know if you have any questions or need more clarification.
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