"Students and parents paying college expenses need to keep receipts and be aware of tax benefits that can help offset college costs." Says Brenda Schmitt, ISU Extension Family Finance Program Specialist.
The American opportunity tax credit can be up to $2500 and can be claimed for college expenses paid during the first four years of post-secondary education. This includes expenses for course-related books, supplies, and equipment that are not necessarily paid to the educational institution. The cost of a computer would qualify for the credit if the computer is needed as a condition of enrollment or attendance at the education institution.
Expenses that do not qualify include: 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.
The tax credit will reduce your tax liability by one dollar for each dollar of credit for which you're eligible. If the amount of the tax credit exceeds your tax liability, the excess will be refunded to you up to the lesser of 40 percent of the credit or $1000. The American opportunity tax credit is available for amounts paid through only 2012, unless Congress extends the credit. If Congress does not extend the credit, you may be eligible for the Hope scholarship credit or the Lifetime Learning credit for any tuition and fees required for enrollment you pay after 2012.
Be sure to keep your receiptsthat little pieces of register tape can be worth a lot of money come tax time.