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Three tax options for college students and their families

Tuesday, March 25, 2014

Even with student financial aid, going to college can be expensive. Luckily, college students and their families can take advantage of a number of tax credits and deductions designed to make college more affordable. As the tax deadline and the college acceptance deadline approach, it's important to review these cost-cutting options.

Tax credits
Students who are enrolled in college or parents who are paying for college can take advantage of two tax credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Anyone enrolled in a degree program at least half-time can use the AOTC, which affords a credit of up to $2,500 per student. The credit is allowable for the first four years of an undergraduate degree and includes monies paid for tuition, fees, books and other school supplies. The LLC is available to individuals who pay college tuition and fees. It provides a maximum credit of $2,000 per student. Unlike the AOTC, the LLC has is no limit to the number of years the credit may be used, nor is there a minimum enrollment status. The individual may be working towards a degree or an additional credential, or taking courses to improve job skills.

Applicable deductions
There are also several deductions from which current or former college students can benefit. For example, the Student Loan Interest Deduction is available for those paying off student debts. Qualified individuals who meet the income requirement can receive a deduction of up to $2,500. This program is meant to offset the interest on loans that former students paid over the course of the year.

Students and their families may also want to consider the tuition and fees tax deduction. Anyone who was enrolled in school at least half-time and is within certain income limits can deduct a maximum of $4,000 on tax returns. People who do not qualify for one of the tax credits may be particularly attracted to this option.

However, it is important to note that you cannot claim the tuition and fees deduction and one of the education tax credits in the same year. Do some research to determine which is applicable to your situation and will save you the most in the long run.

Qualified Tuition Programs
You may also consider looking into Qualified Tuition Programs (QTPs). These plans, which are run by individual states, their agencies or schools, allow students to prepay tuition or contribute to a fund that will be used to pay these costs. One of the major benefits of school-sponsored QTPs is that students and their families are locked in at a given tuition rate and therefore exempt from any future increases. - helping you find colleges and universities that offer the accredited programs that most interest you.

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Three tax options for college students and their families
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