What’s more, the American Opportunity Credit is a partially refundable education tax credit. That means if you’ve offset your applicable taxes and there’s some of the credit left over, you could receive money back as a refund. We’ll get into those specifics a little later.

Have other student tax filing questions? Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free. 

American Opportunity Credit rules

On top of qualified tuition and fees, books and supplies (including a computer if it’s required for enrollment or attendance) count as eligible school expenses. However, the same expenses may not be used to claim any of the other education tax credits, deductions, or exclusions.

Instead of $2,500 of qualified education expenses applying to the credit directly, the American Opportunity Credit rules work slightly differently. The expense calculations are broken into two parts.

Here’s what that looks like. If you’re an eligible student, the AOTC is a credit of:

• Up to 100% of the first $2,000 of qualified expenses
• Up to 25% of the next $2,000 of qualified expenses

As mentioned above, the American Opportunity Tax Credit is partially refundable. If you don’t have a tax liability for the year, you can get up to 40% ($1,000) back.

Let’s review an example calculation to see this in action:

Steve and Carol pay $8,000 in qualified education expenses during the tax year for their daughter’s junior year in college. Their tax liability for the tax year is $1,000. Under the American Opportunity Credit, they qualify for a credit of $2,500, $1,000 of which is refundable.

Kiddie tax exception –  If the AOTC is claimed by a child who is subject to the kiddie tax, the credit is not refundable. Note that the student doesn’t have to actually pay kiddie tax to be considered subject to the kiddie tax. A student with no unearned income can still be subject to the kiddie tax rules.

American Opportunity Credit phaseout – If your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if you’re married filing jointly), your eligibility will start to “phase out” — meaning you may only qualify for a partial credit or none at all. You cannot claim the credit if your MAGI is over $90,000 ($180,000 if you’re married filing jointly).

American Opportunity Credit requirements and eligibility

To claim the American Opportunity Tax Credit, you’ll have to meet several requirements.

Enrollment – You must be enrolled for at least one academic period that begins in the tax year in which you are claiming the AOTC. For 2023, an academic period that began during the first three months of 2024 is treated as beginning in 2023 if you paid qualified education expenses in 2023 for that academic period. You also must be:

• Enrolled in an eligible educational institution at least part time
• Enrolled in a post-secondary undergraduate program leading to one of these:
  • Degree
  • Certificate
  • Other recognized educational credential

The school decides what qualifies as full-time or half-time enrollment. Although the number can be higher or lower, most educational institutions see 12 credit hours in one semester as full-time status.

However, the standard for half-time workload cannot be lower than the standard established by the Department of Education.

Years of study – The student must not have completed the first four years of post-secondary education as of the beginning of the taxable year. This definition is also determined by the school.

Claiming the AOTC previously – You can only claim the American Opportunity Tax Credit four times per student. The Hope Credit, a predecessor of the American Opportunity Credit available through 2009, will also count in the four available uses of the American Opportunity Credit.

AOTC qualifying expenses

Tuition, enrollment fees, and related expenses to the program of study typically count as a qualified educational expense for the AOTC. This includes the cost of things like:

• Books
• Supplies
• Equipment
• Student activity fees (if paid to the institution as a condition of enrollment or attendance)

The tax credit does not cover higher education expenses associated with:

• Room and board
• Transportation
• Medical insurance

You are allowed to pay for qualified education expenses with borrowed funds like student loans or credit cards. However, you can’t claim the credit if you paid for qualifying expenses with scholarships, federal grants (like the Pell Grant), employer-provided assistance, or funds from a 529 savings plan — unless the scholarship, grant, assistance, or 529 interest are treated as taxable income.

What can affect your eligibility for the American Opportunity Credit?

There are a few situations which may exclude you from taking the credit. You can’t take the AOTC if any of the following apply:

• Your filing status is married filing separately (MFS).
• You are claimed as a dependent on another person’s tax return (such as the taxpayer’s parents’ return).
• You (or your spouse) were a nonresident alien for any part of the year and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
• You used the same expenses to claim the Lifetime Learning Credit.
• You used the same expenses to treat a scholarship, grant, or employer-provided educational assistance as tax-free.
• You received a refund of all expenses.
• The eligible student did not have an SSN or ITIN on or before the due date for filing the tax return for the tax year.

Tax tip: Lifetime Learning Credit may be another option.

If any of the above has disqualified you, don’t despair. The Lifetime Learning Credit may be available to students who don’t meet American Opportunity Credit eligibility. This can include students who are enrolled for college credit less than half-time or have already completed four years of post-secondary education.

American Opportunity Credit tax forms

If you paid qualified educational expenses during a specific tax year to an eligible institution, then you will receive Form 1098-T. Colleges are required to send the tax form by January 31 each year, so you should receive it shortly after that. Some colleges may make it available to you electronically.

The Internal Revenue Service (IRS) requires that you complete tax form 8863 and file it with Form 1040 when filing your annual income tax return.

The American Opportunity Credit vs. The Hope Credit

The Hope Credit was a nonrefundable credit which qualifying students could claim for their first two years of post-secondary education. The American Opportunity Tax Credit replaced the Hope Credit in tax year 2009. By replacing the previous education credit, the AOTC expanded the tax benefits available to students paying for higher education and its related expenses.

Get help claiming the American Opportunity Credit

Whether you choose to file with a tax pro or file with H&R Block Free Online, we can help you file the forms related to the American Opportunity Credit.

The post What is the American Opportunity Credit? appeared first on H&R Block.

Wondering what might apply to you? Check out our list of common and valuable tax breaks.

What is a tax deduction?

If you’re wondering, “What are deductions on taxes” we’ll weigh in now! As briefly stated above, a tax deduction reduces the amount of income subject to taxation from the Internal Revenue Service (IRS), ultimately reducing your overall tax liability by lowering your total income tax bill.

As noted above, there are two types of tax deductions: above-the-line deductions and below-the-line or itemized deductions. We’ll give you a brief description of both as we dive in and later a side-by-side comparison.  [Insert jump link]

Deductions for taxes: A list of helpful options

From gig worker perks like the home office deduction, to retirement contributions, here’s a tax deduction list.

Above-the-line deductions:

Deductions subtracted from your gross income to calculate your adjusted gross income are known as “Above-the-line” deductions.

1. Retirement contributions and Traditional IRA deductions

If you contribute to a tax-advantaged traditional retirement account (IRA, 401(k), etc.), you may owe less tax than if you didn’t contribute. With a 401(k), you might not even realize you’re receiving an exclusion if you have your contribution automatically made in conjunction with your paycheck. The money comes out before the taxes do, resulting a reduction of your taxable income.

With a Traditional IRA, you can still get a tax deduction without requiring access to an employer plan. However, your tax break may be limited if you also participate in an employer plan. For self-employed taxpayers, SEP IRA and SIMPLE IRA contributions are “above the line” tax deductions. See the other self-employed deductions below.

2. Student loan interest deduction

Did you know you can deduct up to $2,500 of your student loan interest? This education expense deduction is “above the line,” so you don’t have to itemize in order to take advantage of it, but you need to make below a certain level of income to qualify.

3. Self-employment expenses

With working side hustles becoming more popular recently, it’s no surprise that self-employment expenses are more common. For example, if you pay for your own qualified health insurance, that may count as an “above the line” deduction. Also, you can deduct one-half of your self-employment tax above-the-line.

On top of that, you can deduct business expenses like internet costs, office supplies, advertising, and business travel from your business income. And, for qualifying individuals, you can take the home office deduction!

4. Home office tax deductions

Speaking of self-employment, if you’re self-employed and have a home office that meets IRS standards, you can take a tax write-off for it – called the home office deduction. For example, if your home office represents 4% of your home’s total square footage, you may be eligible to deduct 4% off that property’s utilities, insurance, and property taxes. Just remember there are strict rules around what constitutes a home office with “regular and exclusive use.”

5. HSA contributions

Health Savings Accounts (HSAs) are gaining in popularity as health care costs rise and as more employers seek to put more of the cost of insurance on employees. Your after-tax HSA contributions are tax-deductible. Not only does the money grow tax-free when you use it for qualified health care costs, but you can use your contributions to reduce your tax liability to boot!

6. Alimony paid

If you pay alimony, you could take an above-the-line tax deduction. Generally, alimony is not deductible if your divorce was finalized after 2018. To qualify for the alimony tax deduction:

• You must make the payment in cash, not property
• The spouse must receive the payment under a divorce or separation agreement. The agreement can’t specifically exclude the payment from being:
  • Included in the recipient’s income
  • Deducted by the payor spouse
• You can’t reside in the same household as your former spouse when the payment is made if divorced or legally separated.
• Liability for payments must end upon the death of either spouse.

7. Educator expenses

Teachers who incur out-of-pocket expenses can reduce their AGI by offering a tax deduction of up to $300 (for 2023) for qualified K-12 education items that are used for the classroom. The deduction rises to $600 (for 2023) if an educator is married to another eligible educator and filing under the status Married Filing Jointly.

Below-the-line deductions:

It is beneficial to claim below-the-line or itemized deductions if your total deductions are more than your standard deduction.

8. Charitable donations deduction

You will need to itemize your deductions if you want to deduct your charitable donations. Many people find it worth itemizing these deductions—particularly if you give regularly to a church or other charity.

It’s also possible to deduct the current fair market value of goods you donate to charity. Make sure you get a receipt for your donations, whether they are cash or goods. And don’t forget to keep track of your mileage if you drive on behalf of a charity; that’s tax-deductible, too.

9. Mortgage interest deduction

If you own a home and itemize, you can deduct the qualified interest you pay on your mortgage. It’s also possible to deduct refinancing points and other aspects of your home ownership costs, including property taxes.

10. State and local taxes

State and local taxes are a federal tax write-off. The current limit for the  SALT deduction is $10,000. State and local taxes include income, real estate, and personal property taxes.

11. Medical expense deduction

If you’re itemizing deductions, you can take a medical expenses deduction if you have unreimbursed expenses that are more than 7.5% of your Adjusted Gross Income. Learn more about the medical expense deduction.

Tax deduction examples — above & below the line

Here’s a deeper dive on the difference between above-the-line and below-the-line tax deductions.

• Above-the-line deductions: Above-the-line tax deductions, or adjustments to income, are calculated by subtracting them from your gross income to arrive at your adjusted gross income (AGI). Reducing AGI can impact other items on your return, such as taxable Social Security and eligibility for credits. You can claim these tax breaks regardless if you claim the standard deduction or itemize your deductions.
• Below-the-line deductions: Below-the-line tax deductions, also known as itemized deductions, are expenses that are deducted from your AGI to reduce your taxable income and your tax liability. These deductions are reported on Schedule A of your tax return (Form 1040). 

What doesn’t count as a tax deduction?

While there are many tax deductions that can help offset your tax bill, these (unfortunately) don’t qualify: 

• Car inspection fees
• Customs duties
• Employee business expenses (eliminated in 2017 tax law)
• Federal excise tax
• Federal income tax
• Gas tax
• License fees
• Gift tax
• Personal expenses
• Social Security, Medicare, FUTA, and RRTA taxes
• Real property improvements
• Tax paid for someone else

Remember to document!

No matter what tax deduction(s) you take, be sure to properly document them. This is especially true with self-employment expenses and with charitable donations. Keep receipts to back you up. Before you take a deduction, make sure you can prove that you are entitled to it, and consider consulting a tax professional to make sure you’re qualified for every tax credit or deduction you take on your tax return.

Get help claiming tax deductions

Understanding tax deductions is crucial if you want to maximize your potential tax refund and lower your tax bill at tax time.

Need help determining which tax credits or deductions apply to you? Whether you choose to file with a tax pro or file with H&R Block Online, we can help you navigate your taxes. We’ll help you find potential tax credits and breaks, and you can rest assured that we’ll get you the biggest tax refund possible.

The post Don’t overlook these 11 common tax deductions appeared first on H&R Block.

No need to delay your filing! In fact, file now to receive your current Child Tax Credit right away and receive any top off amount later.  

The Child Tax Credit is a valuable tax benefit claimed by millions of American parents with the goal of offsetting the costs of raising a child. The Child Tax Credit is worth up to $2,000 for each qualifying child for 2023 (returns filed in 2024). 

What is the Child Tax Credit?

Simply stated, the Child Tax Credit (CTC) is a tax credit for those with dependent children under age 17 at the end of the tax year. Taking the credit can help lower your tax bill dollar-for-dollar – and depending on how much you owe, it may take your taxes owed down to zero.

Like many tax benefits, you must meet certain requirements before you can claim the Child Tax Credit. These cover details about the child, the relationship between you and the child, and your income.  We’ll get into these details below as we review who qualifies for the Child Tax Credit.

Don’t leave money on the table

File your taxes to claim the Child Tax Credit. Our tax pros can help you file in person or virtually, or you can file on your own online.

File now

Is the Child Tax Credit refundable?

The Child Tax Credit is not a refundable tax credit. But, the related credit, called the Additional Child Tax Credit, is refundable. This article covers details for both, but here are the major takeaways:

• The nonrefundable Child Tax Credit can reduce your tax to zero. If the amount of your credit is higher than the taxes you owe, you don’t “get back” the rest of the credit as a refund.
• The refundable Additional Child Tax Credit can reduce your tax to zero and, if there’s credit left over, you’ll get money back. 

How much is the 2023 Child Tax Credit? (also known as 2024 Child Tax Credit)

For 2023 taxes (for returns filed in 2024), the Child Tax Credit is worth $2,000 for each qualifying child. You can claim this full amount if your income is at or below the modified adjusted gross income threshold (see the income phase out information below).

The refundable Additional Child Tax Credit is worth up to $1,600.

Who qualifies for the Child Tax Credit?

Qualifying for the Child Tax Credit is about more than just having a child in your home. In fact, there are seven requirements, or “tests,” that must be met to qualify for this credit.

Let’s dig into them:

1. Age: The child must be under age 17 at the end of the tax year.
2. Dependent status: The child must be allowed as a dependent on your tax return.
3. Relationship: The child must be your own child, stepchild, sibling, or a descendant of your child, stepchild or sibling. It also includes a foster child placed with you by an authorized placement agency.
4. Citizenship: The child must be one of these: a U.S. citizen, a U.S. national, or a U.S. resident.
5. Financial support: The child must not have provided more than half of their own support.
6. Residency: The child must have lived with you for more than half of the tax year. There are exceptions for divorced or separated parents, where the child may live with the other parent for more than half the year, but you still may be able to claim the child.
7. Filing status: The child must not have filed a joint return, except in certain cases where they filed only to claim a refund of withheld income tax or estimated taxes.

On top of these tests, you must also meet income thresholds to take full benefit as the credit phases out for high earners. Read on to understand how the phase out works.

Child Tax Credit income limit and phase-out

The Child Tax Credit amounts change as your modified adjusted gross income (MAGI) increases. In fact, once you reach a certain threshold, the credit amount decreases or phases out.

And the credit amount is reduced $50 for every $1,000 — or fraction thereof — that your modified AGI is more than:

• $200,000 if filing as single, head of household, or qualifying widow(er)
• $400,000 if married filing jointly
• $200,000 if married filing separately

For the purpose of this credit, your modified adjusted gross income (MAGI) is your AGI plus excluded foreign earned income, possession income, and foreign housing.

Additional Child Tax Credit

If your tax liability is very low, the Child Tax Credit may not be the most advantageous for your situation. Or, if you don’t owe any taxes at all, you may not see the benefit of filing a return. While you may not be required to file a return, you could benefit from filing and claiming the refundable Additional Child Tax Credit. 

This is where difference between a refundable vs. non refundable tax credit matters. Claiming the ACTC means you could receive money back. The maximum refundable portion of the Additional Child Tax Credit is limited to $1,600 per qualifying child.

Additional Child Tax Credit qualifications

To qualify, one of these must apply:

• Your earned income must be more than $2,500 for 2023.
• You must have three or more qualifying children.

If you have at least one qualifying child, you can claim a credit of up to 15% of your earned income over the earned income threshold, $2,500.

If you have three or more qualifying children, you can either:

• Claim a refundable credit of the net Social Security and Medicare tax you paid in excess of your Earned Income Credit (EIC), if any.
• Use the 15% method described earlier.

How to claim the Child Tax Credit

You can claim the Child Tax Credit as part of filing your annual tax return with Form 1040. You’ll also need to complete and include Schedule 8812 (Credits for Qualifying Children and Other Dependents). This document will help you figure out how much of the Child Tax Credit/Additional Child Tax Credit you’re eligible to receive.

When to expect your Child Tax Credit refund 

The typical timeframe for the IRS to issue a refund is 21 days or less if you’ve filed electronically and chosen to receive your refund by direct deposit.

However, if you have anything missing or errors on your return, it could require additional review. It’s a good idea to double check your return to avoid this extra processing time. Additionally, it could take longer to receive if you’ve chosen a paper check, of course, as you may encounter longer mail times.

What else should you know about Child Tax Credit requirements and rules

You can’t carry forward any portion of the Child Tax Credit to future tax years. Additionally, you need to claim any other nonrefundable credits you may be eligible for, in a certain order to get the most benefit. In other words, you might need to calculate other credits first to properly apply the credit.

Child Tax Credit considerations for divorced and separated parents

The Child Tax Credit and Additional Child Tax Requirement requirements apply to divorced or separated parents, too. However, if the parents have a qualifying agreement for the noncustodial parent to claim the child, the noncustodial parent who claims the child as a dependent is eligible to claim the Child Tax Credit.

A parent can claim the CTC or ACTC if their filing status is Married Filing Separately.

Getting help claiming the Child Tax Credit

Have questions or ready to file your Schedule 8812? We’re here to help! Whether you file taxes online or with an H&R Block tax pro, we’ll help you uncover every last credit and deduction you deserve.

*As currently written, the bill would direct the IRS to issue any additional refunds as soon as possible to those who have already filed.   

The post Child Tax Credit: How it works & How to claim it appeared first on H&R Block.

There are many ways to optimize your refund if you do some legwork. Find ways to increase your tax refund with a few strategies below!

Want to score every possible deduction and credit you deserve? An H&R Block tax professional or one of our easy-to-use online tax filing options can help you determine how to maximize your tax return.

4 ways to increase your tax refund come tax time

Everyone wants to know how to get more back on taxes, but the hard part is knowing where to start. From filing status considerations to income tax deductions and credits, several factors can impact how much tax you pay each year.

1.     Consider your filing status

Believe it or not, your filing status can significantly impact your tax liability. Your income tax filing status informs the Internal Revenue Service (IRS) about you and your tax situation. Typically, your tax return filing status depends on whether you’re unmarried or married by the end of each calendar year—December 31.

The five statuses are:

• Single
• Married Filing Jointly
• Married Filing Separately
• Head of Household
• Qualifying Surviving Spouse with Dependent Child

Considering your filing status is essential because it will impact your overall refund amount. Here is some general tax wisdom on filing statuses based on if you’re married or unmarried:

Head of Household vs. Single (for unmarried individuals)

• If you’re not married and can claim a qualifying dependent, it might be of value to file as Head of Household. This filing status has a higher standard deduction and more advantageous tax brackets than filing as a Single.
• If you care for elderly parents, you could also potentially qualify to claim Head of Household status. This is the case if you provide more than half your parent’s financial support—even if your parent doesn’t live with you.

Married Filing Jointly vs. Separately (for married couples)

• Choosing the Married Filing Separately status could have limitations, such as losing certain deductions and credits available. For this reason, you should carefully consider your filing status choice to maximize your refund potential. (Related read: “What is the benefit of Married Filing Jointly vs. Married Filing Separately?”
• The Child Tax Credit is available to Married Filing Separately spouses, which entitles them to a credit of up to $2,000 per year for each qualifying child. It can be claimed by a separate filer with less than $200,000 in adjusted gross income (it’s $400,000 for joint filers).
• While choosing the Married Filing Jointly filing status is advantageous for many taxpayers, there may be times where choosing the Married Filing Separately filing status is appropriate.

You can leverage tax pros or online tax programs to determine the best filing status for you for the given tax year.

2. Explore tax credits

Tax credits are a valuable source of tax savings. Compared to tax deductions, they can be better tax refund boosters because they offer a dollar-for-dollar tax reduction. So, for a $1,000 tax credit, you’ll shave $1,000 off your total tax bill.

Many taxpayers leave money on the table with tax credits simply because they don’t know they exist. For example, only four in five eligible taxpayers claim the Earned Income Tax Credit. That could mean missing out on thousands of dollars back with this refundable credit.

Other beneficial tax credits include:

• Child and Dependent Care Credit
• American Opportunity Tax Credit
• Lifetime Learning Credit
• Home Energy Credits
• Education credits
• Retirement Savers Contribution Credit

(Related: Go deeper to discover the difference between credits vs. deductions.)

3. Make use of tax deductions

Another beneficial way to boost your refund is through tax deductions. Tax deductions lower your taxable income, which in turn can lower your tax bill. Let’s say a deduction is valued at $1,000 and you’re in the 12% tax bracket. That deduction would then lower your taxable income by $120.

Above-the-line vs. below-the-line deductions

Understanding deductions gets a bit tricky because they fall into different categories, which can impact when you can use them. One of these concepts is whether the tax deductions are above-the-line vs. below the line.

Above-the-line deductions are used in calculating your Adjusted Gross Income (AGI). Below-the-line deductions are taken after your AGI has been calculated to determine your overall taxable income. Above-the-line deductions are often confused with itemized deductions, but they are different.

Common above-the-line deductions include:

IRA contributions

Setting aside retirement funds in a retirement account is a worthwhile effort to save for retirement and score tax benefits. And, if you meet the income requirements, you can offset your income with the amount of your contribution. It’s an above-the-line deduction, which means you can take the deduction even if you’re not itemizing.

Student loan interest deduction

You may be eligible for a student loan interest deduction for up to $2,500 interest paid on a qualified student loan.

More info on itemized deductions

While both can help reduce your taxable income, itemized deductions are simply a method to take deductions.

There are a few ways to take below-the-line line deductions: standard vs. itemized deductions:

• Standard deduction: As the name implies, a standard deduction is a set amount based on filing status. If you choose this route, you only take the one deduction.
• Itemized deductions: are a list of several individual deductions that are different from person to person based on your financial life
• If you own a business, you may also be eligible to claim the qualified business income deduction “QBID” even if you don’t itemize.

In general, you choose standard or itemized based on what’s larger for you.

4.  Take year-end tax moves

While you might think tax planning is limited to around the tax deadline (in April), this isn’t the case. Tax planning is a year-round endeavor and is especially important at the end of the calendar year. Taxpayers who make contributions or payments prior to the calendar year end (December 31) can accelerate expenses (deductions), which could result in a lower tax bracket. Here are some examples:

• Schedule health exams and procedures to fully utilize amounts in a health flexible spending account.
• Make charitable donations if you plan to itemize deductions.
• Make contributions to a health savings account or traditional IRA, or budget to make additional qualifying contributions before April 15.

Specific to self-employed, independent contractors, or freelancers:

• If your budget allows, accelerate expenses by making purchases and placing items in service before the end of the year: (Think equipment, hardware or software, home office purchases, and more!) These purchases serve as tax deductions for your business.

How to get a bigger tax refund, and other tax tips

Increasing your tax refund is easier than it sounds—staying organized, choosing the right filing status, and claiming the credits and deductions you qualify for can help you get a bigger refund from the IRS.

Whether you choose to file with a tax pro at H&R Block or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.

The post How to maximize your tax return: Ways to get the most back on taxes appeared first on H&R Block.

While the cost of college can add up, there is a potential tax deduction you can take. The student loan interest tax deduction can help make higher education expenses more affordable.

While you may be on your way to college, in college, or out, this post will discuss the student loan interest deduction. So, if you will someday or are currently making student loan interest payments to pay back what you took to finance your higher education, tune in!

Related: Check out our student tax filing guide.

Is student loan interest deductible?

If you’re wondering, “Is student loan interest deductible?” The answer is yes. In fact, federal student loan borrowers could qualify to deduct up to $2,500 of student loan interest per tax return per tax year. You can claim the student loan interest tax deduction as an adjustment to income. You don’t need to itemize deductions to claim it.

What is student loan interest?

Student loan interest is the interest you paid during the year on a qualified student loan (sometimes called a qualified education loan). Student loan interest can be found on Form 1098-E, from the lender. A tuition statement (form 1098-T) shows the tuition and scholarship information. A qualified student loan is a loan you took out only to pay qualified education expenses that were:

• For you, your spouse, or a person who was your dependent when you took out the loan
• Paid or incurred within a reasonable period of time before or after you took out the loan
• For education provided during an academic period for an eligible student

Loans from these sources aren’t considered qualified student loans:

• Related person
• Qualified employer plan

Qualified education expenses are the total costs to attend an eligible school. This includes graduate school. The costs include:

• Tuition and fees
• Room and board
• Books, supplies, and equipment
• Other necessary related expenses, like transportation

You can usually claim the student loan tax deduction if you meet all these requirements:

• Your filing status is any status except married filing separately.
• No one else is claiming you as a dependent.
• You’re legally obligated to pay interest on a qualified student loan.
• You paid interest on a qualified student loan.

If you’re Married Filing Jointly:

• You can deduct the full $2,500 if your modified adjusted gross income (AGI) is $155,000 or less.
• Your student loan deduction is gradually reduced if your modified AGI is more than $155,000 but less than $185,000.
• You can’t claim a deduction if your modified AGI is $185,000 or more.

If you’re filing as Single, Head of Household, or Qualified Surviving Spouse:

• You can claim the full $2,500 student loan deduction if your modified AGI is $75,000 or less.
• Your deduction is gradually reduced if your modified AGI is $75,000 but less than $90,000.
• You can’t claim a deduction if your modified AGI is $90,000 or more.

How the student loan interest deduction works

If you pass the qualifications above, you probably want to know how the student loan interest deduction works. Like any other tax deduction, it lowers your taxable income, and in some instances could lower your tax bracket.

This deduction is above the line, meaning it’s an adjustment to your taxable income, and you don’t have to itemize your taxes to claim it. You can subtract up to $2,500 of interest paid from your income when calculating AGI.

Where to go for more help with student loan tax deduction

To learn more specific tax information, see Chapter 4 of the Internal Revenue Service Publication 970: Tax Benefits for Higher Education at www.irs.gov. To get hands-on guidance, get help from H&R Block. At H&R Block, you can find the expertise you need. Whether you file on your own with H&R Block Online or file with a tax pro, we’ll be there with you every step of the way.

Free tax filing for students – Did you know some students can file for free with H&R Block? It’s true! Learn more who can file for free with H&R Block Free Online.

The post Student loan interest deduction appeared first on H&R Block.

Learn more about this valuable tax credit and its nuances here.

How much is the Child and Dependent Care Credit worth?

Currently, the Dependent Care Credit is 20% to 35% of qualified expenses. The percentage depends on your adjusted gross income (AGI). The maximum amount of qualified expenses for the credit is:

• $3,000 for one qualifying person
• $6,000 for two or more qualifying persons

How much you can claim phases out depending on your income.

Requirements for the Child Care Tax Credit

To claim this valuable tax credit, the following should all be true:

1. You and your spouse usually file as married filing jointly. (See Filing exceptions below.)
2. You provide the care so you (and your spouse, if married) can work or look for work.
3. You have some earned income. If you’re married and living together, both you and your spouse must have earned income. However, one spouse might be disabled or a full-time student at least five months of the year. If that’s the case, IRS assigns one of these earned income amounts to that spouse:
   1. The higher of $250 or actual income for the month for one child
   2. The higher of $500 or actual income for the month for two or more children
4. You and the person(s) being cared for live in the same home for more than half of the year.
5. The person providing the care can’t be:
   1. Your spouse
   2. Parent of your qualifying child under age 13
   3. Person you can claim as a dependent
6. If your child provides the care, they:
   1. Must be age 19 or older
   2. Can’t be your dependent

If you’re married but not filing jointly with your spouse, you can claim the credit if:

• You paid more than half the cost of maintaining a household for the year. Both you and the qualifying person must have used the home as your main residence for more than half the tax year.
• Your spouse wasn’t a member of the household during the last six months of the tax year.

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Who qualifies for the Child Care Credit?

To claim a Child Care Credit for qualified expenses, you must provide care for one or more qualifying people. (See Qualified expenses section below)

Qualifying persons include:

• A dependent who’s a qualifying child and under age 13 when you provide the care. Usually, you must be able to claim the child as a dependent to receive a credit. However, an exception applies for children of divorced or separated parents. In those situations, the child is the qualifying child of the custodial parent for purposes of this credit. This applies even if the noncustodial parent claims the child as a dependent.
• Spouse or dependent of any age who’s both:
  • Physically or mentally incapable of self-care
  • Has the same main home as you do when you provide the care

Qualified expenses for the Child and Dependent Care Credit

Qualified child- or dependent-care expenses are those you run up while you work (or look for work). They should be related to well-being and protection. They include:

• Expenses for care provided outside of your home. This applies if the qualifying person regularly spends at least eight hours each day in your home. If the qualifying person receives the care in a dependent-care center, the center must comply with all relevant state and local laws. A dependent-care center is one that cares for more than six people for a fee.
• Expenses for in-home care. This includes expenses for:
  • Cooking
  • Light housework related to the qualifying individual’s care
  • The care itself
• Gross wages paid for qualified services, plus your portion of:
  • Social Security
  • Medicare
  • Federal unemployment taxes
  • Other payroll taxes paid on the wages
  • Meals and lodging for the employee providing the services

What expenses don’t qualify for the Child and Dependent Care Credit?

Unfortunately, these expenses don’t qualify for the Child and Dependent Care Credit:

• Transportation costs to and from the childcare facility
• Overnight camp expenses
• Expenses for the education of a child in kindergarten or higher
• Expenses for chauffeur or gardening services

The cost of before- or after-school programs might qualify if the program is for the care of the child. Education costs below kindergarten qualify if you can’t separate those costs from the cost of care. (A good example is nursery school.)

How to claim the Child Care Credit

Luckily, to claim this credit you only need to fill out one extra tax form. Complete Form 2441: Child and Dependent Care Expenses and attach it to your Form 1040 to claim the Child and Dependent Care Credit.

Bonus content: Employer-provided benefits

Some employers provide childcare benefits in addition to the Child and Dependent Care Credit. These are called employer-provided benefits and can include:

• On-site care for their employees’ children
• Direct payment for third-party care
• Accounts earmarked for childcare expenses. Employees can put money from their salaries into these accounts.

If the value of the benefits is more than $5,000, your employer will report everything over $5,000 as taxable income. If the value is less than $5,000, it’s not taxable income.

Some employers offer Section 125 plans. These are also called cafeteria plans or flexible spending accounts (FSAs). They allow employees to reduce their salaries for one or more nontaxable benefits. You can use common flexible spending accounts to pay childcare or medical expenses.

Your W-2, Box 10 will show the amount of child and dependent care benefits your employer provided. You can’t use expenses paid or reimbursed with these benefits to claim the childcare credit. Subtract the Box 10 amount from the amount of the child and dependent care credit you can claim. When your W-2 shows dependent care benefits, you must complete Form 2441 (Form 1040), Part III. This applies even if you’re not claiming a Child Care Credit.

Can you take a child care tax deduction?

No, there are no tax deductions available for child care for individuals—just a credit. However, you might qualify for other credits or deductions. To learn more, read about the top five common tax credits.

More help with claiming the Child Care Tax Credit

If you think you qualify for the Child Care Tax Credit or other tax credits like the Earned Income Tax Credit, or deductions, get help! With many ways to file your taxes with H&R Block, we can work with you in a way that best suits your needs to help maximize your tax credits and deductions.

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Also, if you’re looking to safeguard your important documents before a disaster happens, we’ve outlined four simple steps you can take now.

Getting relief after a disaster

Special tax-law provisions might help you recover financially after a disaster. This especially applies if the president declares your location a major disaster area.

Timing considerations for disaster relief

If you live or own a business in a federally declared disaster area eligible for public or individual assistance (or both), you can get a faster refund by claiming losses related to the disaster on your previous year’s return. Do this by filing an amended return. If it makes more sense for your current financial or tax situation, you can deduct a loss on your current-year return.

Additional considerations for federally declared disaster areas:

• You have up to four years after the close of the first year in which any gain was realized to replace your principal residence or pay tax on the gain.
• You might have filing and payment deadlines postponed for a time specified by the IRS. Any interest that normally would apply to late payments may be waived in this situation.

Disaster relief documentation and reporting tips

These tips can help you get the benefits you’re due after a disaster:

• Take photographs to document damage to your property or belongings. This will be helpful in calculating the amount of your loss. You might also benefit if you take photos showing the condition of the property after it’s restored or replaced.
• Keep your receipts. Certain expenses might be deductible, and they could be helpful in determining your loss. Receipts for contracting work can show how much you lost and confirm the use of insurance reimbursements (see below).
• Food, medical supplies, and other forms of assistance aren’t taxable. These items also don’t reduce the amount you can claim as a loss unless they replace lost or destroyed items.
• File your insurance claim as soon as possible. This is important since you must subtract any reimbursement when calculating your loss.
• Replace property with similar property to avoid paying taxes on any gain from insurance payments. However, replacement property doesn’t have to match item-for-item. Insurance payments for the home and its contents are from a common pool of funds. So, you can spend more money replacing the house than on replacing its contents, or vice versa. If you qualify, you might be able to postpone a gain related to a personal residence. This applies if you use the insurance reimbursement to repair or replace your home.
• Reimbursements for losses aren’t taxable unless you receive more for the property than its basis. The basis is the original cost plus the cost of improvements. Even if the reimbursement is more than the basis, you don’t have to pay tax currently if both of these apply:
  • You replace lost, damaged, or destroyed items.
  • You replace the items within:
    • Two years after the end of the first tax year when any part of the gain on conversion is realized
    • Three years for real property used for business or held for investment
    • Four years if the property is a main home in a federally declared disaster area
• You might be able to claim a casualty loss on your return.
  • The loss amount is based on the lower of these two numbers:
    • Property’s adjusted basis prior to the casualty. The property’s adjusted basis is usually the price paid for the property plus any improvements.
    • Property’s decline in market value caused by the disaster. In some cases, you can determine this by repair costs.
  • Reduce the deductible amount by insurance and most other nontaxable reimbursements.
  • If the property isn’t used for business, reduce the deductible amount of the disaster loss by $100. Then, further reduce it by 10% of your adjusted gross income (AGI). Caution: Certain qualified disaster losses are eligible to be claimed as an additional standard deduction subject to a $500 reduction (no AGI reduction applies). Generally, these are qualified disaster losses attributable to certain disasters that occurred in years 2016-2020.
  • Claim a nonbusiness disaster loss sustained during the year in 2021 as an itemized deduction on Schedule A.
• You can’t consider the cost of cleaning up or making repairs part of your casualty loss. However, you can use the cost for repairs as a basis to determine the decrease in fair market value (FMV).
• The IRS will waive fees and expedite requests for copies or transcripts of your federal return. If you need information from your return, use one of these forms to request a transcript of your federal return:
  • Form 4506-T: Request for Transcript of Tax Form
  • Form 4506T-EZ: Short Form Request for Individual Tax Return Transcript

A transcript shows most of the line items from your return. You can also use Form 4506-T to request transcripts of W-2s and 1099s and account information — like payment of estimated taxes.

If you need greater detail on prior returns than is provided by transcripts, you can request a photocopy of a prior return and any attachments by submitting Form 4506: Request for Copy of Tax Form.

You can obtain these forms:

• By calling the IRS toll-free disaster hotline at 866-562-5227
• At www.irs.gov

Preparing before a disaster

Disasters can strike at any time and when it happens, you’ll have a lot on your mind. If you’re able to find time to safeguard your financial records before an event occurs, you’ll thank yourself later.

The IRS suggests you take these steps to protect your documents from natural disaster:

• Create a backup set of records electronically. Keep a copy of your records in a safe place that’s stored away from the original set. Records that should be backed up include:
  • Bank statements
  • Tax returns and records
  • Insurance policies

To create electronic duplicates of your paper records:

• Scan the paper records into an electronic format.
• Save those files to an external hard drive or CD.
• Store the files at another location or save them to an offsite online server.

• Document your valuables. Photograph or videotape the contents of your home, especially to document valuable possessions. A photographic record can help you prove the market value of items for insurance and casualty-loss claims. Store the photos or video with a friend or family member who lives outside the area.
• Review and update your emergency plans annually. If you’re an employer, update emergency plans when you hire new employees or when your organization changes functions.
• Check on fiduciary bonds. If you’re an employer and you use a payroll service, ask the provider if it has a fiduciary bond in place. That bond could protect you in the event of default by the payroll-service provider.

Need help navigating your taxes after a disaster? We’re here to help

No matter what way you file your taxes, we can help with how to claim disaster relief on your taxes.

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What’s a tax write-off?

First, let’s answer, “what’s a write-off?” Simply put, a tax write-off is a reduction on your overall tax bill. In tax lingo, it’s called a tax deduction.

Tax credits could fit the definition of a write-off, but for the purposes of this post, we’ll exclusively cover tax deductions. As an aside – if you want to go deeper on the difference, check out our credits vs. deductions post.

Exploring the tax write-off meaning a little further…

It’s beneficial to understand the tax write-off meaning because it can lower your tax bracket.

The U.S. taxes its citizens using a graduated tax rate. This means there are tax brackets — and your income between the levels are taxed at different rates.

When you take write-offs, you can reduce your taxable income based on your tax bracket. So, the higher your tax bracket, the more you could potentially save. For example, a $100 tax deduction is worth $10 to a taxpayer in the 10% bracket, while a $100 deduction is worth $37 to someone in the 37% bracket.

What can I write-off on my taxes?

If you’re trying to figure out what to write-off on taxes, below a general list of common tax deductions. Additionally, we’ve called out a few  overlooked tax deductions in this post.

Keep in mind, all but one of these deductions requires the itemized deduction versus a standard deduction. What does that matter? Well, it’s generally only beneficial to itemize your deductions if the total of your itemized deductions is more than standard deduction.

1 – Property taxes:

You can deduct property taxes paid to a county or other local government during the year. This tax deduction is commonly missed because there isn’t an informational tax return or notice associated with it. It’s up to you to remember to deduct the amount paid. Learn more about deducting property taxes.

2 – State and local taxes:

Believe it or not, state and local taxes are a federal tax write-off – and it’s more commonly referred to as the SALT deduction. The current limit for this specific deduction is $10,000.

Gain more insight into state tax.

3 – Deductible Individual Retirement Account contributions (IRA):

If you contribute to a Traditional IRA, you could be eligible to write-off a portion or all of your retirement contributions as a tax deduction. With contribution limits up to $6,000 (or $7,000 if the account owner is age 50 or older), overlooking this tax deduction results in a missed opportunity to reduce your taxable income. Any contribution is reported as a deduction on line 19 Form 1040 Schedule 1.

4 – Charitable contributions:

Did you know you can simultaneously do good and get a tax write-off? It’s true! While charitable donations are a common tax write-off, they are still overlooked because many people don’t think they donate enough per year to qualify.

Limits are generally based on your adjusted gross income (AGI), type of charity donating to, and method of donation. Cash and non-cash donations are deductible between 20% and 60% of your AGI.

You can even write off out-of-pocket expenses incurred while donating your time to charity. (Think gas mileage to and from your charitable event or cost of goods purchased exclusively for the event.)

5 – Tax-deductible contributions to a Health Savings Account:

Medical expenses can add up. To combat this, many employers offer Health Savings Accounts (HSA). Contributions made directly to the HSA, (not through payroll deductions) are a tax-deductible expense. HSA Contributions made through a payroll deduction are not tax deductible since the contribution has never been recognized as income. Learn more about the tax-deductible HSA contribution limits and more on this topic.

Need help with your tax write-offs in 2021?

Now that you know more about the topic, it’s up to you to maximize your tax write-offs in 2021.

With H&R Block’s many tax filing options and products, gain the confidence of knowing you’ll get the most money back. We speak the tricky language of taxes and can help you get your maximum refund through write-offs and tax credits.

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Read on to learn about the college student tax credits and deductions, including college education tax credits and a post-college student tax deduction.

You should also tune in if you’re a parent to a college student or recent college graduate, as you may qualify for potential tax credits and deductions listed below as well!

Available college student tax credits

The student tax credit examples that follow are the only credits available to most college students:

• American Opportunity Credit
• Lifetime Learning Credit

Let’s dive into the details of each college student tax credit.

Education Tax Credit #1 – “The American Opportunity Tax Credit”

The first tax credit available to college students is the American Opportunity Tax Credit, or AOTC. It’s sometimes referred to as the college tuition tax credit, because it’s often taken to offset the costs of college tuition.

It allows a maximum student tax credit of up to $2,500 per student of these costs:

• Tuition
• Fees
• Course materials
• Textbooks required for a course are a qualifying college student tax credit expense for the American Opportunity Credit. This is true regardless of where you buy them.

What doesn’t qualify?

• Insurance and associated fees
• Medical expenses
• Room and board
• Same expenses paid with tax-free educational assistance.
• Same expenses used for any other tax deduction, credit or educational benefit.
• Student fees, unless required as a condition of enrollment or attendance
• Transportation expenses

The AOTC covers both of these:

• 100% of the first $2,000 of qualified expenses
• 25% of the next $2,000 of expenses

It’s usually available to degree-seeking students during the first four years of their post-secondary education while they’re taking at least half of a full work load. This educational tax credit is also partially refundable. So, if you’ve paid your applicable taxes and there’s some of the credit left over, you could receive money back as a refund. Additionally, parents of college students may also qualify for the AOTC.

Learn more about the specifics of the American Opportunity Tax Credit. The corresponding tax form for this credit is Form 1098-T, which reports the education expenses you paid to the school.

The Education Tax Credit #2 – “Lifetime Learning Credit”

The Lifetime Learning Credit is another popular tax credit for college students as well as lifetime learners. It’s not an education tax credit exclusively for college students, but general learning credit for lifetime learners. Here are some specifics:

• It allows a credit of 20% of the student’s first $10,000 of qualifying expenses. The maximum credit is $2,000 per return.
• It’s available to students taking at least one post-secondary course that’s either:
  • Part of a degree program
  • Taken to acquire or improve job skills

Textbooks aren’t qualifying student tax credit expenses for the Lifetime Learning Credit. There’s an exception if you have to buy books directly from the institution (not the bookstore) as a condition of attendance.

Learn more about the Lifetime Learning Credit. The corresponding tax form for this credit is Form 1098-T, which reports the education expenses you paid to the school.

Bonus: The student tax deduction – “Student Loan Interest Deduction”

If you’re a recent college graduate, you may be paying back the student loans you used to finance your higher education. If this is the case, you could qualify to deduct up to $2,500 of student loan interest on your return each year. You can claim this student education deduction as an adjustment to income and don’t need to itemize deductions to claim it.

There are specific limitations to this student tax deduction. Learn more about the Student Loan Interest Deduction.

Get help seeking college student tax credits and deductions

Learning how to file taxes as a college student can be difficult and confusing. With many ways to file with H&R Block, we can walk you through the decision-making process to get the greatest tax benefit for you and anyone that may qualify to claim you as a dependent in a way that works for you.

Have other student tax filing questions?  Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free.

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Hold on, though—before you rush out to enroll in that pottery class you’ve been itching to take, you should know that there are qualifications you and your educational institution have to meet in order for you to claim the credit. They’re pretty specific, so we’ll guide you through the basics of what you should know in order to qualify and claim the lifetime learning credit.

Have other student tax filing questions?  Be sure to visit our Tax Guide for College Students and find out about student forms that can be filed for free.  

Nuts and bolts of the Lifetime Learning Tax Credit

First things first—exactly what is the lifetime learning tax credit? The concept is pretty simple, really — if you are enrolled in one or more courses at an eligible post-secondary educational institution, you can receive up to $2,000 as a dollar-for-dollar credit on expenses paid. However, the IRS is pretty explicit on what expenses qualify for the lifetime learning credit and who is eligible. 

Lifetime learning credit requirements and eligibility

To qualify for the Lifetime Learning Credit, you must meet requirements regarding your student status, educational institution, and expenses you want to claim. 

An eligible institution is a post-secondary educational institution (including colleges, universities, vocational schools, etc.) that is allowed to participate in the student financial aid program from the U.S. Department of Education

Eligible school expenses include tuition and fees and required course-related equipment like books, beakers, and yes, maybe even that pottery wheel. The main thing here is that the equipment must be listed as required by the institution as part of a for-credit course. You cannot include expenses like housing, meals, medical expenses, transportation, or noncredit courses.

In addition to standard degree programs, the LLC also covers the cost of workforce development and continuing education courses. So, if you were putting off leveling up in the workplace because of the costs associated with professional learning, this may be the answer you were looking for.

Calculating your Lifetime Learning Credit amount

Assuming you’ve passed all the requirements above, you may qualify for up to $2,000 — but the actual Lifetime Learning Credit amount you’re allowed may not be the full two $2,000.

The actual breakdown is that the credit is will equal to 20% of your expenses, up to $10,000.  There’s also a phase-out according to your income, meaning the credit amount is gradually reduced if your income is between $80,000 to $90,000 ($160,000 to $180,000 for joint filers) starting in tax year 2021.  

Other higher education tax credits

If you don’t qualify for the Lifetime Learning Credit, don’t panic—you have other higher education tax credit options:

American Opportunity Tax Credit (AOTC)

The AOTC is available for students or parents of students who are in the first four years of post-secondary education at qualified institutions. You’re allowed to claim up to $2,500, and you may not use it in tandem with the lifetime learning credit or tuition and fees deduction.

Tuition and Fees Deduction

Note: the Tuition and Fees Deduction has not been extended for tax year 2021.

The following details apply to previous tax years. The Tuition and Fees Deduction is as it sounds—an above-the-line income exclusion of tuition and eligible fees paid, up to $4,000. One difference between this deduction and the Lifetime Learning Credit is that the income phase-outs are higher with the tuition and fees deduction, meaning it may be available to some people whose income was too high to claim the Lifetime Learning Credit.

How to claim the Lifetime Learning Credit

Each year, you should receive a Form 1098-T from your educational institution that reports your costs and what’s eligible for credits. To claim the LLC, you’d enter the info from your Form 1098-T onto Form 8863 and submit with your tax return. Filing taxes as a student can be tough — and filing taxes for your dependent student can seem tougher.

Ready to claim the Lifetime Learning Credit?

You can file the forms related to the American Opportunity Credit for free using H&R Block Free Online. 

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