Education Credits: There are two (2) types of education credits: American Opportunity and the Lifetime Learning Credit. Both are wonderful credits. Most of you probably know you take the total allowable (qualified) expenses and subtract any scholarships and grants received and the difference can be used, claimed as expenses for calculating the education credit.
Many of you may not realize, that if the scholarship/grants are more than the qualified (allowed) expenses, this excess scholarship/grant income has to be reported as income and might be subject to income tax--depending on the total income of the student.
And still, many of you probably don't know that in 2014, the IRS began allowing for Pell grants & some scholarships to be claimed as income in order to get more education credits. This is called, Maximizing the Education Credit. Learn how to do this--and you could possibly increase your client's refund by up to $2,500. Learn what to watch for & rules that need to be followed-- not everyone qualifies, not everyone will benefit, but many will--it is AWESOME! See training below
A little about Lifetime Learning Credit-- See PUB 4491 page 22-6
You will receive a credit of 20% of what was spent on allowable (qualified) expenses ---- up to a maximum credit of $2,000
Client has to spend $10,000 to get the $2,000 credit.
$10,000 x 20% =$2,000
Client spent $1,400 in 2022. What will their credit be? 1,400 x 0.20= $280 The taxpayer can only get up to $280.
Remember, Lifetime Learning credit is a NON-refundable credit that can only pay tax liability. If the student's tax liability is less than $280, the credit will be less (or zero if their is no tax liability).
The system does all the work-- this is just to demonstrate how it is calculated.
Great Handout created by Tim Tucker!
IRS' Fact Sheet introducing Maximizing Educations Credits
You can contact me at email@example.com
Please note: I, Mary Meador, AM NOT a certified accountant or tax law expert. I volunteer with VITA providing free tax preparation for individuals and families whose income is less than $66,000 a year. We deal with simple returns at our sites. I cannot guarantee the accuracy of all the information on this site as tax laws change and I may not have a clear understanding of complicated issues. I am trying to provide basic tax preparation information for our volunteers to get started--remember Publication 4012 is your go-to resource for questions, as well as irs.gov and Publication 17. I hope you find this information useful and easy to understand. Thanks for being a VITA/TCE volunteer!
**I am human, so if you find a mistake, please let me know so I can fix it--we are all in this together**
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