<p>I did not claim any tuitiion deductions (for my daughter's tuition) for the last two years mainly I did not know I could. If you go back and claim them will the added tax deductions affect my AGI at all I am afraid we might get less financial aid which we need badly?</p>
<p>The American Opportunity Tax Credit is just that - a $2500 tax credit. It does not impact your adjusted gross income(AGI). The maximum credit is $2500 per eligible student per year, as long as you have paid enough in qualified expenses. It MAY impact your financial aid as it reduces your Federal income taxes owed.</p>
<p>American Opportunity Tax Credit: Questions and Answers
Q1. Have there been any changes in the past few years to the tax credits for college expenses?
A. Yes. The American opportunity tax credit, which expanded and renamed the already-existing Hope scholarship credit, can be claimed for expenses paid for tuition, certain fees and course materials for higher education in 2009, 2010, 2011 and 2012.</p>
<p>Q2. The Hope scholarship credit originally applied only to the first two years of college. Has that changed?
A. Yes. The American opportunity tax credit can be claimed for expenses for the first four years of post-secondary education.</p>
<p>Q3. How does the American opportunity tax credit differ from the Hope scholarship credit and Lifetime Learning credit?
A. Unlike the other education tax credits, the American opportunity tax credit includes expenses for course-related books, supplies and equipment that are not necessarily paid to the educational institution. It also differs from the Hope scholarship credit because it allows the credit to be claimed for four years of post-secondary education instead of two.</p>
<p>Q4. How much is the American opportunity tax credit worth?
A. It is a tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year. Also, 40% of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax.</p>
<p>Q5. What are qualified expenses for purposes of the education tax credits?
A. In general, qualified expenses for the education tax credits include tuition and required fees for the enrollment or attendance at an eligible post-secondary educational institution. To be creditable, the expenses paid during a taxable year must relate to: (1) an academic period that begins in the same taxable year; or (2) an academic period that begins in the first three months of the following taxable year. See Publication 970, Tax Benefits for Education.
The following expenses do not qualify:
Room and board.
Transportation.
Insurance.
Medical expenses.
Student fees unless required as a condition of enrollment or attendance.
Same expenses paid with tax-free educational assistance.
Same expenses used for any other tax deduction, credit or educational benefit.</p>
<p>This quote is from financial aid guru swimcatsmom, in a 2010 thread about education tac credits and how they impact your EzfC:</p>
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<p>If you did not take the AOC in previous years, and you were eligible to have done so, you should file corrected tax returns for those years using Form 1040x.</p>
<p>I know it can be tedious to read, but take the time to work your way through <a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a> to determine which type(s) of education credits and deductions are best for your to use.</p>
<p>Thanks for the replies. I think the Tuition and Fees deduction will allow me to deduct more money, up to $4,000. Does anyone know if this one works the same way as the other and will not affect the AGI?</p>
<p>In a few cases the tuition and fees deduction will get you more money, but you should run it both ways. The tuition and fees deduction reduces AGI while the credit reduces your tax burden and has both a refundable and nonrefundable component. </p>
<p>If you are using software, such as H&R Block tax at home, or Turbo Tax you there are calculators that tell you the best option.</p>
<p>I am not a tax expert, and as happy mom said, you really should read the IRS publication, but I have to call your attention to the difference between a tax deduction and a tax credit.</p>
<p>A tax deduction reduces your income, so you pay taxes on a lower amount of income. It reduces your AGI.</p>
<p>A tax credit reduces the amount of taxes you owe. For most people, a $2500 tax credit is more valuable than a $4000 deduction. And with the AOC, a portion of the $2500 is refundable, meaning that if you owed no taxes, you would still get a refund.</p>
<p>Thanks again for replies, I will take the time to read the information. I will have to see which is better for me. I do my own taxes (and not that well) to save money. I got a slight raise but do not want to get less financial aid so maybe the deduction would be better so I will have a lesser AGI, but again I will read all of the above information links. This site is a great help.</p>
<p>Last year I set up an Excel spreadsheet so I could make line by line comparisons between the deduction and the credit for our federal taxes, state taxes, and FAFSA. For us, the credit was optimal.</p>
<p>If a family is borderline for a Pell Grant, taking the deduction to reduce AGI might be advantageous. You really do need to try everything every possible way even though it is such a colossal pain to that.</p>
<p>The tuition and deduction is not going to be as good a tax benefit as the tax credits. The credits reduce your tax. The deduction reduced your income. So a $2500 tax credit, if you are eligible for the max, would reduce your tax by $2500. A $4000 deduction would reduce your income by $4,000 which would reduce your taxes by $4,000 times your top tax rate (for instance if your tax rate is 25%, it would reduce your taxes by $1000).</p>
<p>However, if there weren’t all that many taxes to be paid in the first places, and the drop in AGI meant that now the student would qualify for a full (or nearly full) Pell, I think that the deduction might make sense. </p>
<p>So very glad this is my last year for FAFSA!</p>
<p>And the tuition and fees deduction isn’t available for 2012, so it would only apply to those amended returns you are considering.</p>
<p>^ the tuition and fees deduction will be available for 2012.</p>
<p>It’s in the bill that House just passed to avoid the fiscal cliff</p>
<p>The tuition and fees deduction ended at the end of 2011. The education credits (AOC and Lifetime learning credits) will be available for 2013 and beyond. They eliminated the deduction last year, along with the educator deduction. It had nothing to do with the fiscal cliff.</p>
<p>^See the Senate-approved fiscal cliff bill, H.R. 8. the American Taxpayer Relief Act of 2012 <a href=“http://dontmesswithtaxes.typepad.com/Senate_fiscal_cliff_HR8_010113.pdf[/url]”>http://dontmesswithtaxes.typepad.com/Senate_fiscal_cliff_HR8_010113.pdf</a></p>
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<p>Well, thank you. I was told it wan’t on the table any longer in our tax prep meeting that we had yesterday. (I work for a tax company) I will admit when I am wrong, and truthfully, it was a good solution for a lot of taxpayers.</p>