In the world of taxes, tax credits are sought after and used as much as possible to reduce tax liabilities. One of these tax credits that remains available but will soon be gone includes the American Opportunity Tax Credit (AOTC).
This tax credit was written and designed to assist with the cost of higher education and college today. As part of the 2009 stimulus legislation, technically known as the American Recovery and Reinvestment Act of 2009, the AOTC was enacted to benefit taxpayers dealing with college tuition and support costs in two tax years: 2009 and 2010.
This tax credit benefits many tax payers given the way it was established. These include:
Continuation and expansion of what used to be Hope Credit which provides a tax credit eligibility for directly paid college tuition and related expenses. These expenses would include costs for books, registration fees, tuition, course material costs and similar.
The credit itself provides for full reimbursement of costs up to the first $2,000 spent and a quarter of the next $2,000. Receipts and proof of expense need to be retained by the taxpayer in case of review or audit. The AOTC can be taken by any taxpayer earning below $80,000 or a married couple filing jointly and earning less than $160,000. A phasing out of eligibility and reimbursement occurs for incomes higher than these levels. For those who earned no income, the AOTC still provides almost a half of cost reimbursement up to $1,000 (40% to be exact for each eligible student).
There are limitations on who can use the tax credit, however. For instance, if your tax filings already include a claim on the Lifetime Learning Credit or alternatively the American Opportunity Tax Credit then you’re out of luck. You can’t claim AOTC and the other tax credits simultaneously. So tax filers need to do a little math to determine which credit works better for reducing their tax liability.
More information and details can be read about the AOTC at the Internal Revenue Service’s website by downloading Publication 970 – Tax Benefits for Education.