College Related Tax Strategies to Consider Going Into 2012
As 2011 draws to a close, it’s time to make decisions about tax strategies going into the New Year. If you have students in college and have paid tuition in 2011 for 2012 classes, you can choose whether to take a deduction or tax credit on your 2011 or 2012 returns. Be aware, however, that the Tuition and Fees deduction currently allowed for up to $4000 per student is set to expire at the end of 2011. If you intend to use this tax break, you may want to consider prepaying enough of your 2012 tuition to make the most of your deduction. The good news is that you do not have to be a full-time student to take advantage of the Tuition and Fees deduction – even one college class will qualify.
The Lifetime Learning credit can also be used, even if you take just one class. To take the deduction on your 2011 tax return, prepay the tuition for any classes you will be taking at the start of 2012. The Lifetime Learning credit offers a higher tax break than the Tuition and Fees deduction – a 20% rebate on tuition expenses up to $10,000.
Another strategy to consider is the American Opportunity tax credit, which is worth up to $2500 on the first $4000 of tuition, good during the first four years of undergraduate college education. This credit is also due to expire, though not until the end of 2012. If you intend to use the American Opportunity tax credit to increase next year’s benefit, consider deferring some of your 2012 tuition payments where possible.
The American Opportunity tax credit and the Lifetime Learning credit have different income ranges than the Tuition and Fees deduction, so the best course of action is to figure out which you qualify for. If you qualify for more than one, choose the avenue that will offer you the best tax break.
Contact us if you have questions about qualifying for the deduction or either credit and for more suggestions on ways to maximize your tax savings!
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