Sunday, August 28, 2016

5 Back-to-School Education Tax Tips to Save You Money this Year

Most entrepreneurs know that learning each day is just part of the job description. If you're not improving and growing, you're dying.

If you, your spouse or a dependent are planning to head back to college this fall, some of your expenses may count as education tax credits on your federal tax return. Here are 5 tips that you need to know:

1. American Opportunity Tax Credit. The AOTC is worth up to $2,500 per year for an eligible student. You can claim this credit only for the first 4 years of higher education and 40% of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you don't have any income tax withholding.

2. Lifetime Learning Credit. This credit can help pay for undergraduate, graduate and professional degree courses, including courses to acquire or improve job skills, which is great for executives and entrepreneurs. This credit is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim this credit for an eligible student.

3. One Credit Per Student. You can't take more than one education benefit for the same student and the same expense. In other words, you can't double-dip on these educations credits.

If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For example, you can claim the AOTC for one student, and claim the Lifetime Learning Credit for the other, but you can't take the AOTC and Lifetime Learning Credit for the same student in the same tax year.

Also, if you get tax-free educational assistance, such as a grant, you need to subtract that amount from your qualified education expenses.

4. Speaking of Qualified Expenses... These include tuition, fees and other related costs required for enrollment or attendance at an eligible educational institution. This is where it gets complicated, so you may want to have your tax pro help you calculate your qualified expenses to figure out your credit.

Eligible schools include most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren't sure if your school is eligible, check to see if your school is on the U.S. Department of Education's Accreditation database .

5. Form 1098-T. Starting with 2016 tax returns, a new law requires that the school report qualified educational expenses that you paid. You must have a 1098-T, known as the Tuition Statement, to claim your education credits. Your school (assuming it's a qualified educational institution) is required to send this by January 31st.

The amounts on the form may be different from what you actually paid in educational costs. For example, your textbooks may not appear on this form, but you may be able to include those costs for your credit.

It's important to know that you can only claim an education credit for the qualified expenses that you paid in that same tax year.

Not surprisingly, there are additional rules if you are in the U.S. as a nonresident alien, on an F-1 Student Visa. This is where a tax pro well-versed in immigration law can help you.

You also need to know that some of these education credits are subject to income limitations and may be reduced or eliminated, based on your income. Visit and use the Interactive Tax Assistant tool to see if you are eligible to claim education credits.

Along with learning, most entrepreneurs also understand the value of saving every penny. This is your chance to further your education and save dollars.

Call it Smart Money 101.

We're here to help you organize, prepare and manage your small business finances.  Click here or contact us for further information.

Credit Image: Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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